Microsoft helps employees invest in themselves by offering a wide range of benefits that will help you save for retirement, provide financial security, and when leveraged correctly, reduce taxes.

However, with so many benefits available, it can be overwhelming to figure out which ones to prioritize. To help you get started, we have compiled a list of the most essential benefits that you should consider:

1. Your Microsoft 401(k)

Make sure you fully fund your 401(k) and earn the maximum employer match.

Microsoft will match 50% of your regular contributions to your 401(k) – as long you contribute at least that much.

In 2024, you can contribute:

  • $23,ooo if you’re under 50.
  • $30,500 if you’re 50+.

You can earn free money (up to $11,500), simply by contributing to your 401(k).

There are 2 ways you can contribute to your 401(k), contributions can be made on a traditional pre-tax or Roth basis.

The difference between a traditional and Roth 401(k) comes down to when you pay taxes.

  • Traditional Pre-Tax 401(k): Contributions are made before taxes. They aren’t counted as income, thus reducing your taxable income for that year. When you make withdrawals in the future, they are taxed as ordinary income. Essentially, “you pay the taxes later.”
  • Roth 401(k): Contributions are made after taxes in a Roth 401(k). When you withdraw savings during retirement, they can be tax-free. In other words, “you pay the taxes now.”

2. Microsoft Mega Backdoor Roth

If you know you’re on track to max out your 401(k), you’ll want to consider leveraging the Mega Backdoor Roth – a provision within your Microsoft 401(k).

It allows you to contribute after-tax dollars to your 401(k) and then convert those dollars to Roth dollars. Within a Roth your money grows tax-free. These same dollars, and the interest earned, can be tax-free when accessed in retirement.

Many people don’t realize there is an annual federal limit for total dollars going into a 401(k). In 2024 the federal limits for 401(k) contributions are:

  • $69,000 if you’re under 50.
  • $76,500 if you’re 50+.

Microsoft allows you to contribute up to the federal limit – which means you can contribute thousands in after-tax dollars and immediately convert those dollars to Roth. 

It’s an excellent way to save for retirement and reduce your future tax bill. This video explains how this benefit works in more detail.

3. Health Savings Account (HSA)

Your HSA allows you to use pre-tax income for eligible medical expenses.

This account provides you with a triple tax advantage:

  • Your contributions are tax deductible.
  • Your money will grow tax deferred.
  • Withdrawals are tax-free if used for qualified medical expenses. There’s no penalty for non-medical withdrawals if you’re 65 or older.

4. Microsoft Employee Stock Purchase Plan (ESPP)

The Employee Stock Plan (ESPP) enables you to purchase Microsoft stock at a 10% discount. 

While it can be a great benefit, we typically recommend enrolling in ESPP after you’ve fully leveraged your 401(k), Mega Backdoor Roth, and HSA.

5. Microsoft Deferred Compensation Plan (DCP)

DCP is an exclusive benefit available to employees who are Level 67 or above.

It’s similar to your 401(k) because it allows you to invest pre-tax dollars, which can reduce your tax bill in the year you make the deferral. Eligible Microsoft employees may be able to reduce their tax bill by tens of thousands of dollars.

You can enroll in DCP 2 times a year:

May 1- 31
Elect to defer up to 100% of next year’s bonus.

November 1 – 30
Elect to defer up to 75% of next year’s salary.

Microsoft Restricted Stock Units (RSUs)

You receive Microsoft RSUs as part of your compensation.

RSUs are not technically an employee benefit, but they can help you maximize the other employee benefits mentioned.

We often recommend employees sell their RSUs at the time they vest, rather than allowing them to accumulate within a brokerage account.

Selling vested RSUs can provide monthly cash-flow flexibility. This strategy is twofold:

It can help you fully maximize your 401(k), HSA, and Mega Backdoor Roth. If you’re Level 67+, your RSU proceeds can help supplement some of your deferred income.

It also helps you avoid keeping your money tied up in MSFT stock, which can reduce your concentration risk. It can help you maintain a diversified portfolio that is more aligned with your long-term plan.

Questions About Your Microsoft Benefits?

Remember, investing in yourself is one of the most important decisions you can make for your financial future. By taking full advantage of your Microsoft benefits, you can optimize your retirement savings and potentially reduce your tax bill.

If you have any questions or need further guidance, don’t hesitate to reach out to our team.