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)
- $22,500 if you’re under 50.
- $30,000 if you’re 50+.
You can earn free money (up to $11,250), simply by contributing to your 401(k).
- 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
Many people don’t realize there is an annual federal limit for total dollars going into a 401(k). In 2023 the federal limits for 401(k) contributions are:
- $66,000 if you’re under 50.
- $73,500 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 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)
5 – Microsoft Deferred Compensation Plan (DCP)
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)
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?
If you have any questions or need further guidance, don’t hesitate to reach out to our team.