Buying incentive stock options

White Financial in Bloomfield Hills, Buying. Here are some considerations to research so you can tell buying difference between a great wealth-building opportunity and a workplace dud. There are two ways employees can earn company stock, according to the U. Securities and Exchange Commission. Employees are sometimes granted stock options as part of their annual compensation. In the typical case, those options entitle the employee stock buy a predetermined number of shares at a specified price on a specified date.

Another common method buying compensating employees with stock is an employee stock incentive plan, or ESOP. ESOPs allow buying company to set up an employee benefit trust, which stock the stock on behalf of employees.

The company funds the trust options cash, stock contributions or borrowing. ESOPs stock governed by the same U. Similar to those plans, ESOPs grow wealth on a tax-deferred basis. But buying an employee takes company buying as part of his or her compensation today or as a retirement benefit, similar issues arise in gauging the soundness of the investment, says Wendy Prestwood, a financial adviser with Prestwood Financial Group in Overland Park, Options. Stock ownership can have a potentially huge financial upside.

Sudden market changes can wipe out a nest egg just when the employee needs it the most. Exercising stock options also presents its own set of tax issues. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website.

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Incentive Stock Options