Microsoft RSUs & ESPP

Avier Wealth Advisors is not affiliated with Microsoft. While Avier communicates with its clients regarding their Microsoft employee benefits, and educates itself on the Microsoft Benefits, there is no guarantee that the information we have provided is accurate. Microsoft employees are encouraged to contact their employer should they have any questions regarding their specific employee benefits.

What are RSUs?

Stock awards make up a large portion of total compensation for many employees at Microsoft. Stock awards may be distributed as part of a hiring package, as part of annual compensation, or merit based and are given as what are called Restricted Stock Units.

If you’re looking for a basic foundation on RSUs at Microsoft and elsewhere, consult our blog post on RSU fundamentals and FAQs.

When do Microsoft employees receive RSUs and when do they vest?

Employees can receive RSUs when hired or as a bonus, however they vest over time. At the point when RSUs become vested, your custodian, sells some of the taxes to mitigate taxes employees would regularly owe on the new compensation.

Typically, employees let their stock grants accumulate in their investment accounts while covering expenses through their salary. We encourage you to flip this thinking. By living off of vesting shares of stock, you gain cashflow flexibility and can then take advantage of the many taxpreferred benefits available to you through pay check deductions. Restricted Stock Units vest multiple times per year and can vary significantly in amount each time. We can work with you to organize and plan your cash flows in order to implement many of these taxsaving strategies.

How does market volatility affect RSUs?

For more on how to assess the effects of market volatility on your Microsoft RSU, see our in-depth video.

What is an ESPP?

Employee Stock Purchase Plans allow employees to have the option of setting aside some of their paycheck for buying Microsoft stock. If you’re learning about ESPPs for the first time, you can read more in our in-depth article on whether or not to participate in your company’s ESPP

The ESPP benefit allows Microsoft employees to purchase shares of Microsoft stock at a discount to its stock price. Your contributions to this program, come from payroll deductions, much like your 401k contributions. However, unlike pre tax 401k contributions, ESPP contributions are taken out on an after tax basis. Additionally, you can’t contribute more than 15% of your salary or $25,000, whichever comes first.Your contributions from each paycheck, are placed in an account, and at the end of each calendar quarter, those funds are used to purchase Microsoft stock at a 10% discount to whatever the current market price happens to be.

When can stock be purchased?

Microsoft determines pre-set dates on which an employee’s funds can be used to purchase stock at a discount from market price.

Let’s Walk Thru an Example of How ESPP Works:

Once the shares are delivered to you, investors are allowed to sell the shares immediately, and we recommend you do so in order to limit your exposure to the fluctuations of Microsoft stock price. If you sell the shares as soon as they are purchased, you can achieve a solid return on the investment each quarter.

For example, if the Microsoft stock price at the end of the quarter is $100 per share, whatever amount you contribute to the ESPP program through payroll deductions, is used to purchase Microsoft shares at a 10% discount, or in this case, $90 per share.

If you contributed the maximum amount you would purchase approximately 63 shares of stock. You could then turn around and sell the shares on the open market for $100 per share. This leaves you an immediate economic gain of over $600 per quarter or about $2,400 per year. You pay tax on this amount at your highest marginal tax rate but you get to keep the remainder.

We prefer that our clients go ahead and sell their shares immediately to recognize that nearly (emphasis on nearly) risk-free return on the investment rather than hold the shares for the long term.

MORE MICROSOFT INSIGHTS

For more information and advice from our Microsoft-focused advisors visit our main Microsoft page, or other pages focused on Microsoft Compensation and Miscellaneous Benefits, or Microsoft 401(k) & Retirement. If you are a Level 67 or higher employee at Microsoft, visit our Microsoft Deferred Compensation Plan page./p>

MICROSOFT
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MICROSOFT 401(K)
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MICROSOFT RSUS
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MICROSOFT’S OTHER BENEFITS & COMPENSATION

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