In 2017, Moog created an Employee Stock Purchase Plan (ESPP) that allows employees to purchase shares at a 15% discount. The purchases can be made automatically through payroll deductions (similar to 401(k) contributions). Importantly, however, ESPP contributions are made with after-tax dollars.
With such a large discount, many Moog employees are likely taking advantage of the program to save for larger expenses down the road, possibly their child’s education. But does that make sense given other options?
Is Moog’s ESPP a good deal?
If you are looking to build an ownership stake in the company, Moog’s ESPP is a better route than simply buying the shares in a brokerage account. The 15% discount allows you to earn an instant return of 17.6%. Why 17.6%?
Moog currently trades for $78.00 per share, which means employees can purchase shares for just $66.30 ($78.00 x .85) apiece. The difference of $11.70 per share would result in a gain of 17.6% ($11.70/$66.30) on your original investment.
What’s the catch?
- Moog shares have to be held for at least 1 year before selling. In other words, Moog employees cannot immediately sell the share for risk-free gain.
- Even with the discount, Moog shares might not outperform the overall stock market. For instance, over the last 10 years, Moog stock returned just 114%, versus 350% for the S&P 500. Discount or no discount, you would have been better off investing elsewhere. Click here for our blog titled “Are You All-In On Moog Stock?”
Is Moog’s ESPP a good way to save for college?
The answer all comes down to taxes. While the discount is tempting, remember that when your shares are eventually sold, you will owe taxes on both the initial discount (taxed as ordinary income) and your capital gain, should Moog stock appreciate further.
This is significant disadvantage versus the traditional route for saving for college: the 529 plan. NY State’s 529 plan offers a triple-tax savings:
- Contributions to the plan are tax-deductible in NY State
- Investments grow tax-free, with no capital gains taxes
- Withdrawals are tax-free as long as they are for qualified education expenses
Ultimately, the right decision for you will depend on many factors, including your marginal tax rate, the age of your children, and how long you plan to stay at Moog.
If you are a Moog employee, let us help you with these tough financial decisions. Ogorek Wealth Management (based in Buffalo, NY) specializes in managing wealth and building retirement plans for Moog employees. We are experts in your benefits plans and will work to give you a seamless transition into retirement.
Learn more about Ogorek Wealth Management and our unique approach by scheduling a time to meet.
Gain comfort in one of the most important decisions in your life.
PLEASE SEE IMPORTANT DISCLOSURE INFORMATION HERE.