Post tax versus pretax (ESPP versus straight investment)
This answer assumes that your purpose for using the ESPP is to generate a relatively safe 15% return on that portion of your income. Frequently before there were Roth 401K options the advice was:  This advice was especially good for the younger workers because they wanted to have a Roth account but didn't want to miss the 401K match. As Roth 401K accounts were introduced that advice changed somewhat because it was possible to get the benefit of the Roth and still get the  maximum match. for your situation what I would propose is: contribute to the 401K enough to get the maximum match.  Contribute as much as you want or are allowed into the ESPP. Take the proceeds and contribute to an IRA or Roth IRA. If you reach the IRA max you have to decide if you will scale back the ESPP to contribute more to the 401K.
Employee Stock Purchase Plans (ESPPs) were heavily neutered by U.S. tax laws a few years ago, and many companies have cut them way back. While discounts of 15% were common a decade ago, now a company can only offer negligible discounts of 5% or less (tax free), and you can just as easily get that from fluctuations in the market. These are the features to look for to determine if the ESPP is even worth the effort: As for a cash value, if a plan has at least one of those features, (and you believe the stock has real long term value), you still have to determine how much of your money you can afford to divert into stock. If the discount is 5%, the company is paying you an extra 5% on the money you put into the plan. "I wrote the whimsically titled ""The Density of Your IRA"" to discuss this exact issue.  In the 25% bracket, your pretax 401(k) would have $18,000, with a future tax due. But the Roth effectively took $24,000 in pretax dollars, and put the $18K in post tax money in the account. Since the limits are the same, the Roth is a denser account." Though I did answer the linked question, I thought to quote parts of this article. Source: The RRSP advantage, by David Hodges, February 6th 2015 [John] Storjohann ['the 58-year-old Calgary project manager'] is keenly aware of the two main advantages of RRSPs: the tax refund when you make a contribution, and the tax-deferred growth until you make withdrawals in retirement. These make RRSPs ideal for those who expect to be in a lower tax bracket when they stop working—which will be the case for most Canadians. For those in the highest tax bracket today, the RRSP is a no-brainer. That’s why Storjohann’s always surprised when he meets people pulling in good incomes who think TFSAs stack up better than RRSPs. “People just don’t understand how these accounts work.” This is the most common objection to RRSPs: people simply hate the idea of paying taxes on the withdrawals. Money taken out of a TFSA, by contrast, is tax-free, which sounds far more appealing. But that logic ignores the fact that you receive a tax refund when you put money in an RRSP, while TFSA contributions are made with after-tax dollars. So for the Fosters and other Canadians weighing this decision, it comes down to whether it’s better to pay tax now or later. And that’s not an easy question to answer. Both Hamilton and Kirzner say that anyone earning more than $50,000 is usually better off prioritizing RRSPs over TFSAs. While both accounts allow your investments to grow tax-free, the tax refund makes the RRSP more attractive for high-income earners. ... That, in a nutshell, is what makes RRSPs better than TFSAs for higher earners: Not only are you taxed on your money years later, but because you’re in a lower bracket when you retire, you’ll pay less tax too.  When your income is between $35,000 and $50,000, the long-term tax differences between RRSPs and TFSAs become negligible, says Malcolm Hamilton. In that salary range, “just being able to put money aside in either an RRSP or a TFSA is great.” But RRSPs can still be a better choice for reasons that don’t involve tax deferral or refunds. In his new book, Wealthing Like Rabbits, author Robert Brown makes the case for favouring RRSPs over TFSAs most of the time because the former usually means less temptation to access your retirement savings early. Footnote: This 2012 CBC.ca article intelligibly explains RRSPs, free of jargon. I respectfully disagree with Eric.  If you invest from day one in a Roth, where, exactly will taxable income come from to put you in a higher bracket at retirement? I agree, maybe for other reasons than you list, that early on, post-tax is the way to go, because I'll assume that one starts work in a lower bracket. There's probably a majority who start work in the 15% bracket, but over time work their way to 25%. As they grow to 25%, using the pretax 401(k) and IRA can keep them at 15% for some number of years. In any year of low income, for whatever reason, they can convert the pretax money to Roth to top off the 15% bracket.  To bring the point home, if you went post tax the whole way, imagine retiring with $2M in the Roth, but no pretax money. You now have a standard deduction, exemption, and the full 10% bracket each and every year gone to waste. Money you paid 25% tax when you could be paying zero on some of it. The deduction and exemption add to $9750 in 2012, and the 10% rate applies to the first $8700 of taxable income. If you do the math, this is $17,500, and if you plan a 4% withdrawal rate, you'd need 437,500 pretax money to give you the 17500 each year. Last, all three factors (standard deduction, exemption, and bracket limits) all rise a bit each year. An increase of $200 is another $5000 to save pretax.  Edit - 2013 brought the ability to convert within one's 401(k) from the traditional pretax side to the Roth side. This makes possible turning 100% of one's 401(k) money to Roth, and retiring without the benefite of the standard deduction, exemptions, etc. Is this an employee stock purchase plan (ESPP)? If so, and there is no required holding period, selling right away is essentially a guaranteed bonus with minimal risk. One caveat is that sometimes it takes a while to actually receive the shares at your brokerage, and in the meantime your company may have an earnings report that could cause the share price to drop. If your discount is only 5%, for example, a bad earnings report could easily wipe that out. The only other cons I can think of is ESPP contributions being withheld from you for months (albeit for a virtually guaranteed return), and it complicates your taxes a bit. On the flip side, another pro is that after you sell the shares, you are more likely to invest that money rather than spend it. I don't think it has to be either-or. You can profitably invest inside the SIMPLE. (Though I wouldn't put in any more than the 1% it takes to get the match.) Let's look at some scenarios. These assume salary of $50k/year so the numbers are easy. You can fill in your own numbers to see the outcome, but the percentages will be the same. Let it sit in cash in the SIMPLE. You put in 1%, your employer matches with 1%. Your account balance is $1,000 (at the end of the year), plus a small amount of interest. Cost to you is $500 from your gross pay. 100% return on your contributions, yay! Likely 0-1% real returns going forward; you'll be lucky to keep up with inflation over the long term. Short term not so bad. Buy shares of index ETFs in the SIMPLE; let's assume the fee works out to 10%. You put in 1%, employer matches 1%. Your contributions are $500, fees are $100, your balance is $900 in ETFs. 80% instant return, and possible 6-7% real long term returns going forward. Buy funds in the SIMPLE; assume the load is 5%, management fee is 1% and you can find something that behaves like an index fund (so it is theoretically comparable to above). 1% from you, 1% from employer. Your contributions are $500, load fees are $50, your balance is $950. 90% instant return, and possible 5-6% real long term returns going forward (assuming the 6-7% real returns of equities are reduced by the 1% management fee). (You didn't list out the fees, and they're probably different for the different fund choices, so fill in your own details and do the math.) Invest outside the SIMPLE in the same ETFs or equivalent no load index funds; let's assume you can do this with no fees. You put in the same 1% of your gross (ignoring any difference that might come from paying FICA) into a self directed traditional IRA. At the end of the year the balance is $500. So deciding whether or not to take the match is a no brainer: take it. Deciding whether you should hold cash, ETFs, or (one of two types of) funds in your SIMPLE is a little trickier. Both types of plans offer a tax benefit.  A traditional IRA allows you to invest pre-tax money into the account and it grows tax free. Once you withdraw the money it then gets taxed as though it were income based on the amount you withdraw for that calendar year. A Roth IRA has you invest post-tax money and also grows tax free. However, when you make withdraws in retirement that money is then tax free.  Neither plan is right for everybody. If you have a very high income now and plan on being in a smaller tax bracket later when you'll be making withdraws then the traditional IRA is better. If you will be in a higher bracket later, then the Roth IRA will serve you more. Depending on the way you manage your retirement investing you can likely invest in both if you are unsure as to which would be better. The same type of investments should be able to be nested within each type. "The primary tax-sheltered investing vehicles in Canada include: The RRSP. You can contribute up to 18% of your prior year's earned income, up to a limit ($24,930 in 2015, plus past unused contribution allowance) and receive an income tax deduction for your contributions. In an RRSP, investments grow on a tax-deferred basis. No tax is due until you begin withdrawals. When you withdraw funds, the withdrawn amount will be taxed at marginal income tax rates in effect at that time. The RRSP is similar to the U.S. ""traditional"" IRA, being an individual account with pre-tax contributions, tax-deferred growth, and ordinary tax rates applied to withdrawals. Yet, RRSPs have contribution limits higher than IRAs; higher, even, than U.S. 401(k) employee contribution limits. But, the RRSP is dissimilar to the IRA and 401(k) since an individual's annual contribution allowance isn't use-it-or-lose-it—unused allowance accumulates. The TFSA. Once you turn 18, you can put in up to $5,500 each year, irrespective of earned income. Like the RRSP, contribution room accumulates. If you were 18 in 2009 (when TFSAs were introduced) you'd be able to contribute $36,500 if you'd never contributed to one before. Unlike the RRSP, contributions to a TFSA are made on an after-tax basis and you pay no tax when you withdraw money. The post-tax nature of the TFSA and completely tax-free withdrawals makes them comparable to Roth-type accounts in the U.S.; i.e. while you won't get a tax deduction for contributing, you won't pay tax on earnings when withdrawn. Yet, unlike U.S. Roth-type accounts, you are not required to use the TFSA strictly for retirement savings—there is no penalty for pre-retirement withdrawal of TFSA funds. There are also employer-sponsored defined benefit (DB) and defined contribution (DC) retirement pension plans. Generally, employees who participate in these kinds of plans have their annual RRSP contribution limits reduced. I won't comment on these kinds of plans other than to say they exist and if your employer has one, check it out—many employees lose out on free money by not participating. The under-appreciated RESP. Typically used for education savings. A lifetime $50,000 contribution limit per beneficiary, and you can put that all in at once if you're not concerned about maximizing grants (see below). No tax deduction for contributions, but investments grow on a tax-deferred basis. Original contributions can be withdrawn tax-free. Qualified educational withdrawals of earnings are taxed as regular income in the hands of the beneficiary. An RESP beneficiary is typically a child, and in a child's case the Canadian federal government provides matching grant money (called CESG) of 20% on the first $2500 contributed each year, up to age 18, to a lifetime maximum of $7200 per beneficiary. Grant money is subject to additional conditions for withdrawal. While RESPs are typically used to save for a child's future education, there's nothing stopping an adult from opening an RESP for himself. If you've never had one, you can deposit $50,000 of after-tax money to grow on a tax-deferred basis for up to 36 years ... as far as I understand. An adult RESP will not qualify for CESG. Moreover, if you use the RESP strictly as a tax shelter and don't make qualified educational withdrawals when the time comes, your original contributions still come out free of tax but you'll pay ordinary income tax plus 20% additional tax on the earnings portion. That's the ""catch""*. *However, if at that time you have accumulated sufficient RRSP contribution room, you may move up to $50,000 of your RESP earnings into your RRSP without any tax consequences (i.e. also avoiding the 20% additional tax) at time of transfer. Perhaps there's something above you haven't considered. Still, be sure to do your own due diligence and to consult a qualified, experienced, and conflict-free financial advisor for advice particular to your own situation." Lots of good answers.  I'll try and improve by being more brief.  For each option you will pay different taxes: Index Fund:   Traditional IRA Roth IRA You can see that the Roth IRA is obviously better than investing in a taxable account.  It may not be as obvious that the traditional IRA is better as well.  The reason is that in the traditional account you can earn returns on the money that otherwise would have gone to the government today.  The government taxes that money at the end, but they don't take all of it. In fact, for a given investment amount X and returns R, the decision of Roth vs Traditional depends only on your tax rate now vs at retirement because X(1-tax)(1+R_1)(1+R_2)...(1+R_n) = X(1+R_1)(1+R_2)...(1+R_n)(1-tax) The left hand side is what you will have at retirement if you do a Roth and the right hand side is what you will have at retirement if you do traditional.  Only the tax rate differences between now and retirment matter here.  An index fund investment is like the left hand side but has some additional tax terms on your capital gains.  It's clearly worse than either. "People often have the wrong idea about how taxes apply to their money.  There's not really any such thing as ""pre-tax"" or ""post-tax"" income, only pre-tax and post-tax **uses** of your income.  This is somewhat hidden by the fact that we pay income tax based on our income for the year; but if you look a bit closer, you'll notice that come April 15th, (almost) every dollar you get to *subtract* from your gross income isn't defined by where it comes from, but rather, where it *went* (there are a few special cases there, like qualified dividends, that that's an entirely different issue).  Perhaps the most clear example of this is a traditional IRA that you self-fund from your savings account on April 14th, for the prior tax year - You're putting dollars you've already taken home, into a pre-tax account, *after* the end of the calendar tax-year; and yet it all works out exactly the same (tax-liability wise - There's certainly an opportunity cost there) as if you had contributed those dollars via a weekly payroll deduction.  So when you manually fund a Roth IRA, it has *no* effect on your tax liability (except insofar as you *don't* get to deduct it from your taxable income, which you wouldn't if you had left it in a savings account, etiher).  In the year you earned that money, you paid taxes on it; when you take it out, you won't." I think you're not applying the right time scale here. ESPP (Employee Stock Purchase Plan) is usually vesting every 6 months. So every half a year you receive a chunk of stocks based on your salary deduction, with the 15% discount. Every half a year you have a chunk of money from the sale of these stocks that you're going to put into your long term investment portfolio. That is dollar cost averaging. You're investing periodically (every 6 months in this case), same (based on your salary deferral) amount of money, regardless of the stock market behavior. That is precisely what dollar cost averaging is. If the $882 is reported on W2 as your income then it is added to your taxable income on W2 and is taxed as salary. Your basis then becomes $5882. If it is not reported on your W2 - you need to add it yourself. Its salary income. If its not properly reported on W2 it may have some issues with FICA, so I suggest talking to your salary department to verify it is. In any case, this is not short term capital gain. Your broker may or may not be aware of the reporting on W2, and if they report the basis as $5000 on your 1099, when you fill your tax form you can add a statement that it is ESPP reported on W2 and change the basis to correct one. H&R Block and TurboTax both support that (you need to chose the correct type of investment there). Whether an investment is pre-tax is determined by the type of account (i.e., tax-advantaged vs ordinary taxable account), but whether you can invest in individual stocks is determined by the provider (i.e., the particular bank where you have the account).  These are orthogonal choices.  If you want to invest in individual stocks, you need to look for a bank that offers an IRA/401k/other tax-advantaged account and allows you to invest in individual stocks with it.  For example, this page suggests that Fidelity would let you do that.  Obviously you should look into various providers yourself to find one that offers the mix of features you want. "1) Usually, the choice between Traditional vs. Roth is whether you believe that your tax rate will be higher or lower in the future than it is now. Your income is probably in the 25% bracket now. It's hard to say whether that should be considered ""high"" or ""low"". Some people advocate Roth only for 15% bracket; but your income would probably go into higher brackets in the future, so Roth may be preferable from this point of view. Roth IRA also has another advantage that the principal of contributions can be taken out at any time without tax or penalty, so it can serve as an emergency fund just as well as money in taxable accounts. Given that you may not have a lot of money saved up right now, this is useful. 2) In a sense, it's nice to have a mix of Traditional and Roth when you withdraw to hedge against uncertainty in future tax rates and have the option of choosing whichever one is advantageous to withdraw when you need to withdraw. That said, you will likely have many years of access to a 401k and high income in your future working years, in which you can contribute to a Traditional 401k (or if no access to 401k, then Traditional IRA), so a mix will almost certainly happen even if you go all Roth IRA now. 3) I think that depends on you, whether you are a hands-on or hands-off kind of investor." Does this make sense? I'm concerned that by buying shares with post tax income, I'll have ended up being taxed twice or have increased my taxable income. ... The company will then re-reimburse me for the difference in stock price between the vesting and the purchase share price. Sure.  Assuming you received a 100-share RSU for shares worth $10, and your marginal tax rate is 30% (all made up numbers), either: or So you're in the same spot either way.  You paid $300 to get $1,000 worth of stock. Taxes are the same as well.  The full value of the RSU will count as income either way, and you'll either pay tax on the gains of the 100 shares in your RSU our you'll pay tax on gains on the 70 shares in your RSU and the 30 shares you bought.  Since they're reimbursing you for any difference the cost basis will be the same (although you might get taxed on the reimbursement, but that should be a relatively small amount). This first year I wanted to keep all of the shares, due to tax reasons and because believe the share price will go up. I don't see how this would make a difference from a tax standpoint. You're going to pay tax on the RSU either way - either in shares or in cash.  how does the value of the shares going up make a difference in tax? Additionally I'm concerned that by doing this I'm going to be hit by my bank for GBP->USD exchange fees, foreign money transfer charges, broker purchase fees etc.  That might be true - if that's the case then you need to decide whether to keep fighting or decide if it's worth the transaction costs.