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Employmer stock benefits and wash sale help (self.personalfinance)

submitted 1 year ago by Copernican to c/[email protected]

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Hey all. My employer offers many stock benefits through RSU, ESPP, and options. I try to max out my ESPP and as a result my non retirement holdings are heavily skewed towards my employer's stock. I'm trying to diversify and not worry about timing the market, but what do I need to consider when it comes to timing sales of the stock to avoid wash sales? Currently we are down from the highs a 2 years ago. Should I worry about wash sales relative to timing of various acquisition dates? What am I losing by making a wash sale? Thanks.

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[–] sevan 1 points 1 year ago (2 children)

Normally I sell all my ESPP stock as quick as possible. Several years ago my company did not have a mandatory holding period, so I always sold it immediately. I had to pay a higher tax rate on the 15% discount, but it was a guaranteed return with no risk.

Now we have a one year required holding period, which is great for lowering taxes, but adds volatility risk. Last year our stock started the year overpriced, then dropped below what I considered a fair price. I stopped selling stock at that point to hold for a fair price. We're just now getting close to a reasonable price, but now I'm holding way too much company stock (I've kept buying my maximum along the way). I'm slowly starting to sell and hope to get back to my old practice of always selling by the end of the year.

On the bright side, I've added a little extra income along the way by selling covered calls against the shares I'm holding. In the last year I've made more from that than dividends on the same shares and have offset the loss on the shares I bought at the peak of the 2022 market. I would still rather sell without a holding period though.

[–] Copernican 1 points 1 year ago (1 children)

Similar boat for me re holding period. As long as the losses of ESPP value are tracking the drops of s&p500, does it make sense to sell at a loss and buy since you will still be acquiring a similar volume of index?

I think where I worry more about the loss isn't on options... If we are in the red relative to the grant price I can't exercise at all with my employer's plan. Also, can only exercise options by selling stock from the option; can't pay out of pocket to acquire full shares.

[–] sevan 1 points 1 year ago

Good point on selling at a loss and reallocating. I would have been willing to do that if I thought I had a better option in mind, but I actually felt very good about the potential 1-2 year price increase opportunity with my employer's stock, so I just held. At this point I'm neutral on the stock price, so I'm starting to reduce my holdings, but mostly by selling covered calls with the expectation that some will get exercised.

I'm in the same place with stock option grants, the last 2-3 years of grants are all worthless at the moment and probably will be for a long time based on how overpriced the shares were in 2021/2022. The timing was particularly bad because we get our grants in Mar/Apr and our price was sky high at that time in 2022, our stock dropped like a rock through 2022, but got back to almost fair value by Mar 2023, so I didn't get any options at the low prices of late 2023.