Passive Income Opportunities – Part 6 –Employer Plans

Employee Stock Purchase Plans (ESPP), Employer Profit Sharing Plans, and Employer 401K contributions are the easiest ways to generate passive income, provided one is employed. Amongst these, profit sharing plan is automatic since virtually no action is required on the employee’s part to avail this benefit. ESPP and Employer 401K contributions on the other hand require opting in. The process of opting in can vary by plan.

Profit sharing plans puts in a percentage of the salary to an employee account – the percentage is derived from a formula that is tied to the company’s profit. Most common downside with profit sharing plans is that the contribution makes its way to the employee’s retirement account, usually the 401K account. Generally this is in the guise of shares in the company’s common stock. A vesting period for these shares is more of the norm. A critical aspect of this is that employees tend to overlook the need to diversify out of company stock.

In a typical ESPP plan, opting in requires signing up and assigning a percentage of salary (limited to $25K/annum fed mandated maximum) as the amount to be used to purchase the stock. During the offer period (usually 6 months) the money will be accumulated in a company account and it can be equated to receiving a portion of your salary at the end of the 6-month offer period as opposed to every 2 weeks. The benefit is that the stock is purchased at a discount (typically designed so as to be over 5%) at the end of the offer period. By selling the stock at the end of the offer period, passive income is realized. The downside with ESPP is that one has to forgo part of the salary during the offer period.

For Employer contributions to a 401K plan, opting in requires signing up and assigning a percentage of salary (limited to $15.5K/annum fed mandated maximum plus $5K/annum catch-up contributions for those over 50) as the amount the employee contributes to the account. Employer contributions to such plans are designed such that the percentage contributed is dependent on the employee contribution. A common plan is employer contributing 50% of up to 5% of the employee contribution. In this scenario, passive income of 2.5% of the salary is realized by opting to contribute 5% to the 401K plan.

The downside with all of these passive income strategies is that once the rat race is successfully exited, the income steam also ceases. Hence, the strategy should be to use these income streams as building blocks for other forms of passive income while still in the rat race.



Related Posts:
  1. Exiting the Rat Race - Definition.
  2. Rat Race Exit Strategies
  3. Passive Income - Part 1 - Network Marketing.
  4. Passive Income - Part 2 - Royalties
  5. Passive Income - Part 3 - Rental Income
  6. Passive Income - Part 4 - Dividends.
  7. Passive Income - Part 5 - Pension Plans
  8. Passive Income - Part 6 - Employer Plans
  9. Strategies to Beat Inflation.
  10. Strategies to Reduce Expenses.
  11. Frugal Living - A Definition to go by
Last Updated: 01/2015.





No comments :

Labels

401k ( 15 ) Abad Turtle Beach ( 1 ) Abrams Capital Management ( 5 ) Acoustic Electric Guitars ( 1 ) Acoustic Guitars ( 1 ) ACT ( 1 ) Activist ( 4 ) Address Change ( 2 ) Advanced Placement ( 4 ) air asia ( 2 ) airlines ( 2 ) Akre Capital Management ( 18 ) Alex Roepers ( 5 ) AP ( 4 ) apartments ( 2 ) Appaloosa ( 15 ) ARIUS ( 1 ) Arlington Value Capital ( 3 ) Atlantic Investment Management ( 5 ) Ayemenem ( 1 ) Bangalore ( 3 ) Bangkok ( 2 ) Bannerghatta National Park ( 1 ) barbuda ( 2 ) Battery Park ( 1 ) Baupost ( 2 ) Baupost Group ( 17 ) bay area ( 2 ) BDCs ( 3 ) Benjamin Graham ( 2 ) Benjamin Graham Model ( 2 ) Berijam Lake ( 2 ) Berkshire Hathaway ( 30 ) best sites ( 9 ) Bill & Melinda Gates Foundation ( 15 ) Bill Ackman ( 19 ) Bill Gates ( 16 ) Blue Ridge Capital ( 15 ) Blum Capital Partners ( 12 ) books ( 4 ) Boone Pickens ( 2 ) BP Capital Management ( 2 ) Brave Warrior ( 3 ) Brave Warrior Advisors ( 12 ) british honduras ( 2 ) Bruce Berkowitz ( 19 ) Bruce Fund ( 13 ) Camcorders ( 3 ) canada ( 4 ) cancun ( 3 ) CANROYs ( 7 ) Cantillon ( 12 ) carl icahn ( 9 ) Carl Ichan ( 8 ) casino ( 3 ) Casio ( 2 ) CBRE ( 2 ) CEF ( 2 ) Charles Akre ( 15 ) Charlie Munger ( 16 ) Chase Coleman ( 15 ) Chou Associates ( 20 ) Christmas gifts ( 7 ) Christopher H. Browne ( 7 ) Chuck Akre ( 13 ) Cisco ( 2 ) Class Action Settlements ( 2 ) CLEP ( 1 ) Coatue Management ( 15 ) Cochin ( 2 ) coin collecting ( 266 ) collectibles ( 266 ) Consumer Product Reviews ( 29 ) cook islands ( 2 ) coonoor ( 2 ) Covered Calls ( 2 ) credai ( 4 ) Daily Journal ( 16 ) Dalal Street ( 8 ) Dan Loeb ( 10 ) DAT ( 1 ) David Abrams ( 5 ) David Einhorn ( 22 ) David Swensen ( 17 ) David Tepper ( 15 ) David Winters ( 15 ) DCF ( 2 ) Digital Piano ( 3 ) Dinakar Singh ( 15 ) Donald Yacktman ( 10 ) dry bulk shipping ( 2 ) Duquesne ( 20 ) Education ( 37 ) Edward Lampert ( 16 ) Egerton Capital ( 15 ) Egypt ( 3 ) Elementary Education ( 10 ) Elementary School Textbooks ( 5 ) eReaders ( 2 ) Eric Mindich ( 13 ) ESL Investments ( 11 ) ESPP ( 6 ) ETF ( 2 ) ETN ( 2 ) Eton Park ( 13 ) Everyday Musings ( 58 ) Exam Prep ( 7 ) Exiting the rat race - how to? ( 19 ) EXPLORE ( 1 ) Fair Value Estimates ( 4 ) Fairfax Financial ( 4 ) Fairfax Financial Holdings ( 14 ) Fairholme ( 19 ) Fairpointe ( 15 ) Family Office ( 5 ) FD Laddering ( 1 ) Financial Independence ( 93 ) Fisher Asset Management ( 10 ) Flash Camcorders ( 3 ) flat ( 4 ) flats ( 2 ) Flip ( 3 ) Francis Chou ( 20 ) free ( 17 ) frugal ( 3 ) Frugal Living ( 34 ) Fund Holdings ( 798 ) futures ( 2 ) FVE ( 2 ) gambling ( 3 ) garmin ( 2 ) Genting ( 2 ) george soros ( 21 ) giveaway ( 15 ) Glenn Greenberg ( 16 ) Glenview Capital ( 10 ) GMAT ( 1 ) Google ( 2 ) Gotham Asset Management ( 7 ) gps ( 5 ) GRE ( 1 ) Greenlight Capital ( 22 ) Guitars ( 3 ) Half Marathon ( 2 ) Hawaii ( 2 ) Hedge Funds ( 817 ) HELOC ( 1 ) High School Education ( 7 ) High School Textbooks ( 6 ) HOA ( 3 ) hobby ( 17 ) holiday shopping ( 7 ) Holidays ( 3 ) Holyland ( 11 ) Home Improvement ( 2 ) home ownership ( 5 ) Homes ( 18 ) Homeschool ( 18 ) Houses ( 2 ) Housing ( 3 ) Hykon ( 2 ) Ian Cumming ( 15 ) Icahn Enterprises ( 6 ) india real estate ( 5 ) Infinuvo ( 6 ) Insurance ( 2 ) invesco ( 17 ) investing strategies ( 2 ) Investment Portfolio ( 94 ) Investment Research ( 10 ) Investments ( 7 ) iRobot ( 5 ) Irving Kahn ( 10 ) israel ( 5 ) Jason Maynard ( 10 ) Jefferies ( 2 ) Jeffrey Bruce ( 15 ) Jeffrey Ubben ( 12 ) Jerusalem ( 2 ) Jim Chanos ( 15 ) Joel Greenblatt ( 7 ) John Armitage ( 15 ) John Griffin ( 15 ) John Paulson ( 17 ) Joho Capital ( 15 ) Jordan ( 3 ) Joseph Steinberg ( 9 ) Julian Robertson ( 4 ) Kahn Brothers ( 10 ) Kakkanad ( 4 ) Kanyakumari ( 2 ) Kawai ( 2 ) Ken Fisher ( 10 ) kerala real estate ( 5 ) Kids ( 49 ) Kids Yamaha ( 3 ) Kindle ( 2 ) kochi ( 8 ) Kodaikanal ( 2 ) Korg ( 2 ) Kraft ( 2 ) Kuala Lumpur ( 2 ) KWA ( 2 ) Kynikos ( 15 ) laptop ( 5 ) Larry Robbins ( 10 ) Las Vegas ( 2 ) Leon Cooperman ( 16 ) Leucadia ( 2 ) Leucadia National ( 13 ) Lone Pine Capital ( 9 ) long ( 6 ) long call ( 2 ) long puts ( 3 ) Lou Simpson ( 15 ) LSAT ( 1 ) Mahabalipuram ( 2 ) Malaysia ( 3 ) Marathon ( 2 ) Mark McGoldrick ( 10 ) Markel ( 16 ) Mason Hawkins ( 4 ) MCAT ( 1 ) Melinda Gates ( 9 ) memorabilia ( 266 ) MFP Investors ( 15 ) Michael Dell ( 17 ) Michael Price ( 15 ) Middle School Education ( 4 ) Middle School Textbooks ( 3 ) Mini Notebook ( 3 ) MODUS ( 1 ) Mohnish Pabrai ( 21 ) mortgage ( 2 ) Mount Kellett ( 10 ) MSD Capital ( 17 ) Music ( 6 ) Mutual Funds ( 5 ) mysore ( 2 ) Nelson Peltz ( 9 ) Netbook ( 4 ) Notebook ( 3 ) numismatics ( 266 ) O-Duster ( 1 ) Oahu ( 2 ) offers ( 2 ) Ole Andreas Halvorsen ( 10 ) Omega Advisors ( 16 ) online tax ( 4 ) ooty ( 2 ) Options ( 4 ) Pabrai Fund ( 17 ) passive income ( 7 ) pattaya ( 2 ) Paulson & Company ( 7 ) Paulson and Company ( 9 ) PEG ( 2 ) Pershing Square ( 19 ) Phil Fisher ( 5 ) philately ( 283 ) Philippe Laffont ( 15 ) Piano ( 9 ) PLAN Test ( 1 ) portfolio ( 4 ) Prem Watsa ( 17 ) product reviews ( 13 ) Property Taxes ( 2 ) PSAT ( 1 ) R2I ( 24 ) R2I Finances ( 3 ) R2I Housing ( 5 ) Raising Kids ( 41 ) Rat Race ( 15 ) RBS Partners ( 14 ) reading ( 5 ) real estate ( 6 ) Reducing Expenses ( 2 ) REIT ( 3 ) Retirement Portfolio ( 9 ) Reviews ( 81 ) Richard C. Blum ( 12 ) Robert Bruce ( 15 ) Robert Karr ( 15 ) Robotic Vacuum ( 4 ) Roland ( 2 ) Roomba ( 10 ) schooling ( 2 ) Sears ( 11 ) seeking alpha ( 2 ) Services - Reviews ( 33 ) Seth Klarman ( 19 ) Shipping ( 5 ) Shopping ( 3 ) short ( 5 ) short calls ( 2 ) short put ( 2 ) short puts ( 2 ) short selling ( 9 ) Ski ( 5 ) Sled ( 4 ) Solar Stocks ( 13 ) Soros Fund Management ( 14 ) Southeastern Asset Management ( 4 ) Southwest ( 2 ) spin-offs ( 2 ) SQ Advisors ( 15 ) stamp collecting ( 283 ) Stanley Druckenmiller ( 20 ) Statue of Liberty ( 2 ) Stephen Mandel ( 9 ) Stock Analysis ( 84 ) Stock Investments ( 4 ) Stock Portfolio Updates ( 6 ) stocks ( 3 ) summer ( 2 ) tax ( 6 ) TaxAct ( 3 ) TaxCut ( 1 ) Teacher's Editions ( 5 ) Technology ( 4 ) Test Prep ( 11 ) Thailand ( 3 ) Thekkady ( 2 ) theme park ( 2 ) Third Point ( 10 ) Thomas Gayner ( 16 ) Thyra Zerhusen ( 15 ) Tiger Cub ( 32 ) Tiger Global ( 16 ) Tiger Management ( 13 ) Time Square ( 2 ) TOEFL ( 1 ) TPG-Axon ( 15 ) Travel ( 278 ) Travel Reviews ( 82 ) Trian Fund Holdings ( 9 ) trip report ( 21 ) TurboTax ( 3 ) Tweedy Browne ( 10 ) Vacations ( 28 ) value investing ( 12 ) ValueAct ( 5 ) ValueAct Holdings ( 6 ) Vancouver ( 2 ) Video ( 3 ) Viking Global ( 10 ) Wallace Weitz ( 10 ) Warren Buffett ( 30 ) Wayanad ( 4 ) Weitz Investment Management ( 9 ) wilbur ross ( 17 ) William Von Mueffling ( 12 ) Wintergreen Advisors ( 15 ) Yacktman Asset Management ( 10 ) Yale Endowment ( 17 ) Yale University ( 7 ) Yamaha ( 7 ) YDP ( 1 ) YPG ( 1 )