How We Serve
Microsoft Employees
A clear, goals-based financial plan designed around
your equity compensation (Microsoft RSU & Microsoft ESPP)
Taking Your Salary and Compensation
Structure Into Consideration
Atkinson Wealth Strategies is here to help you make educated financial decisions based on your
options as a Microsoft employee.
Whether you are with Microsoft, LinkedIn, or Github, you have some of the best employee benefits in the tech industry. With great benefits comes a great number of options. What is right for one of your colleagues may not be right for you. Work with an experienced CFP® Professional at Atkinson Wealth Strategies who will help you navigate and leverage your benefits to develop a comprehensive custom plan that prioritizes your goals, objectives, and life stage.
How We Can Help
We have the expertise to help you strategically navigate your Microsoft equity options
Microsoft 401(K) Options
Microsoft will match 50% of every dollar you contribute, up to the IRS deferral maximum, and all of your 401k contributions and Microsoft’s matching contributions are considered 100% fully vested on day 1.
For the year 2023, that means you can contribute $22,500, and get $11,250 in matching. If you are 50 or over you are eligible for an additional “catch-up” contribution of $7,500. However, Microsoft does not match additional “catch-up” contributions.
Microsoft’s 401k has a Roth 401k option. You can contribute the same $22,500 for 2023, but you do not get a tax reduction in your current year. Instead, the Roth 401k allows those earnings to grow tax deferred and offers tax-free withdrawals, when planned correctly, in retirement (59.5+ years old). You still receive the same 50% Microsoft 401k match on your Roth 401k contributions.
Note: Contributing to Microsoft’s Pre-Tax 401k vs. Microsoft’s Roth 401k depends on your unique situation. The saying “You will be in a lower tax bracket when you retire.” is not always true. You also do not know what the tax codes and brackets will be when you retire.
The limit for total 401k contributions in 2023 is $66,000 (not including “catch-up”). This means you can put an additional $32,250 into your Microsoft 401k via after-tax contributions.
Example: Personal 401k contributions of $22,500 (not including “catch-up”) + Microsoft’s match of $11,250 (50% of $22,500) + after-tax contributions of $32,250 = $66,000
After-tax money grows on a tax-deferred basis until retirement. When taking a distribution in retirement, the contributions can be withdrawn tax-free but the earnings are considered taxable ordinary income when withdrawn.
Note: Microsoft 401k has an amazing feature called “Mega Backdoor Roth” which is not offered in all 401k plans. Refer to the next option for details.
Microsoft’s 401k Mega Backdoor Roth works with the after-tax 401k option. The limit for total 401k contributions in 2023 is $66,000 (not including “catch-up”). This means you can contribute an additional $32,250 into your Microsoft 401k via after-tax contributions, and unlike the Roth 401k, this option does not have income limits.
Example: Personal 401k contributions $22,500 (not including “catch-up”) + Microsoft 401kmatch of $11,250 (50% of $22,500) + after-tax contributions $32,250 = $66,000.
However, instead of stopping there and leaving it in the after-tax, it gets converted to the Roth 401k side. Meaning that your contributions AND the earnings will be withdrawn tax-free in retirement.
Should you contribute to the Pre-tax 401k or the Roth 401k? Should you max out your Mega Backdoor Roth? Should you max out my ESPP? These are all great questions, and the simple answer is “It Depends.” In addition, the answer can change over time as your household situation and goals change.
Note: Depending on your position, you may be subject to trading windows making a 10b5-1 trading plan a valid option.
Microsoft Restricted stock units (RSU)
There are several types of Microsoft RSU Awards you will receive as a Microsoft Employee.
On-hire Stock Awards: This will be part of your hiring package at Microsoft. The Microsoft vesting schedule will be determined when you are hired, but they typically vest at 25% per year starting one year after your hire date.
Annual Stock Awards: These RSUs come every August based on performance reviews and have a 20% vesting rate per year, starting in November.
Special Stock Awards & Leadership Stock Awards: These are given to employees who exceed expectations or are in management-level roles. Due to the nature of these, they do not have a set schedule. For employees who reach age 55 and 15 years of service, stock grants that are over one year old continue to vest in retirement.
Think of Microsoft RSUs as a form of cash flow in your financial plan, goals, and investment strategy. Upon each vesting, you have many different options: continue to hold, diversify to other investments, contribute to a college 529 plan, go on vacation, make charitable contributions, buy real estate, etc. The possibilities are endless and the right strategy varies based on your unique situation.
What ends up hurting people the most is not having a financial plan and investment strategy in place ahead of time, which leads to inconsistent and emotional decision-making. When your RSUs vest they are taxed at your income rate. However, in many cases, by default, sell-to-cover elections mean 22% are sold to cover federal taxes. This can be significantly lower than your tax bracket, causing surprise tax bills. The higher up you are at Microsoft, the more your compensation is tied to RSUs, requiring custom planning and investment strategies.
Microsoft Employee stock purchase plan (ESPP)
Microsoft employees have a fantastic opportunity to purchase Microsoft stock at a 10% discount up to $25,000 or 15% of base pay annually; whichever is less.
Example: If Microsoft stock is $300 per share; on the date of purchase Microsoft will purchase the share at $270, using what you have accumulated via ESPP payroll deductions, and then, deposit the ESPP shares into your Fidelity account.
Our Insights:
- Taxes: ESPPs have different tax treatments (qualifying disposition and disqualifying disposition) depending on the time held from the purchase date as well as the time held since the initial offering date.
- Cash Flow: The number one reason we hear for not participating is due to household cash flow. In many cases, this can be built into your custom financial plan ensuring you are capitalizing on the $2,500 yearly benefit!
- Over Weight Allocation to Microsoft Stock: Between Microsoft RSUs and Microsoft ESPP it is very easy for your portfolio to become overweighted with Microsoft stock. We work heavily with people who have high single-stock concentrated portfolios.
Microsoft Deferred Compensation Plans (DCP)
- There are important dates to be aware of, making it that much more important to have a custom financial plan and investment strategy. One example is big cash flow decisions that are made in the current year but don't go into effect until the following year.
- Examples: May 2023 open enrollment for September 2024 and November open enrollment for January of the following year. This is a direct deduction against your salary.
- There are several distribution options: “At termination” is the default option, but it is not recommended. Based on your situation, it can be smarter to specify the month, year, and frequency of distributions, such as annual, at year 5, year 10, or year 15. There are also some potential advanced planning strategies for state taxes if you take them out in year 9 or before.
- DCP is Subject to the credit risk of Microsoft
Microsoft Insurance
Frequently Asked
Questions
Atkinson Wealth Strategies works with Microsoft Employees with at least $500,000 in investible assets who are wanting a long-term relationship with custom financial/retirement planning and asset management. Because of the level of holistic custom strategies and goals, we do not accept one-off transactional clients.
We are not tied to any firm’s proprietary investment products and engage in no investment banking activities, which means our research and market insights are independent and we are free to recommend any investments that will help you pursue your financial goals.
Yes, we work with clients across the country and have many clients who have never set foot in our office. We implement robust technology for a seamless virtual client experience.
This information is designed to be educational only, and does not constitute financial advice. Atkinson Wealth Strategies is not affiliated with Microsoft. While Atkinson Wealth Strategies communicates with its clients regarding their Microsoft employee benefits, and provides education on Microsoft’s Benefits, there is no guarantee that the information provided is accurate or up-to-date. Microsoft employees should rely on their employer for the most up-to-date information on their benefits, and for answers to any questions regarding their specific situation. There is no guarantee as to the current accuracy of, nor liability for, decisions based on such information and it should not be relied on as such.
Schedule Your Complimentary
Wealth Review
Collaborate with us to review your options and establish a
wealth management plan that aligns with your goals and
objectives.
Are you a Microsoft employee with over $500,000 in investible
assets looking for custom financial planning and asset
management? Let’s set up a time to talk to see if we are a good fit.
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