Planning Considerations for Microsoft Employees Considering Enrollment in the Deferred Comp Plan
Dave Welty | November 13, 2020
Level 67+ Microsoft employees have three big questions to answers by November 30th.
- Do I want to enroll in the Microsoft Deferred Comp Plan?
- What do I need to know before I enroll?
- How much of my income do I want to defer?
Do I want to enroll in DCP?
There are many benefits to enrolling, the main reason being you can reduce your tax bill by thousands. It is also an excellent way to plan for income when you retire. DCP is similar to your 401(k), it allows you to:
- Save and invest dollars on a pre-tax basis
- Make contributions to reduce your tax bill
- Invest contributions into low cost Mutual funds
The primary differences between the Microsoft DCP and your 401(k) is the amount that you can contribute and the payout period.
What do I need to know before I enroll?
Avier’s Managing Director, Dave Welty shares four key considerations we discuss with Microsoft employees who want to enroll in the Deferred Comp Plan:
- Cashflow planning: What are you cash needs for the upcoming year?
- Tax planning: Have you talked with your CPA regarding how much tax you should withhold?
- Income planning: How do you replace your cash flow with RSUs?
- Retirement planning: When do you plan to retire? What are your income sources for retirement? When will you need your DCP payout?
How much of my income do I want to defer?
Eligible employees can defer up to 75% of their salary and 100% of their bonus, meaning you can potentially contribute ~$250,000+ per year. The decision to defer next year’s salary must be made by November 30. The decision to defer next year’s bonus must be made by May 31.
We know the decision to enroll in DCP requires planning. We work with Microsoft Employees Level 67 and above to help them substantially reduce their tax bill by deferring large portions of their salary. We develop a custom plan that looks at your RSU vesting schedule that factors in potential changes in share price to ensure you have the cash flow you need now and in retirement.