What if we suggested you cut your paycheck in half for the rest of the year?
That’s right, it sounds crazy, but you should consider taking advantage of a lesser known after-tax 401(k) benefit that your company provides.
Your 401(k) maximum contribution is $18,500 for 2018 for those under 50, and you may be close to reaching that limit by now. Most employees stop there, not realizing they’ve contributed only half of what they potentially could save.
Instead of stopping your contributions, we’d rather see you log into your Fidelity account, select your Microsoft 401(k) and set your after-tax contribution to the maximum level. This may decrease your paycheck by more than half, but you can leverage the cash received from selling your recently vested company stock to supplement your reduced paycheck.
Company Vested Stock
With our corporate clients, we often encourage investors to take the immediate investment gains received by selling corporate stock purchased at the employee discount. Furthermore, diversification is a powerful tool. You wouldn’t want to rely on just one company for your current and future livelihood, would you?
To sweeten this deal, Microsoft has increased this year’s after-tax contribution to $27,250 (a $7,500 increase from 2017). This benefit is one of the best perks that few employees know about. Additionally, you can automatically convert your after-tax contribution to a Roth 401(k) each quarter on your payroll system. You must pay ordinary income tax on the gains you earned each quarter, but that is a small price to pay to save $27,250 in Roth dollars this year. Remember, there is also no income limit on this strategy, so every employee is eligible.
One Last Thing …
Don’t forget to return your retirement contribution amounts back to their previous amounts at the end of the year.
If you have questions about your corporate benefits, don’t hesitate to give us a call. We can help you navigate these financial waters.
James Nevers, CFP® is an Associate Advisor at Soundmark Wealth Management, LLC. James works closely with physicians, business owners, Directors and Executives at Amazon, Microsoft, and Boeing, and other successful and accomplished individuals to help them define their financial goals and implement an ongoing financial planning process.