If you keep ignoring those HR emails about open enrollment, you’re not alone. We do it too.
But when you work for a tech company, your benefits have a much bigger impact on your life and finances than you may realize. Don’t leave money on the table just because the fine print is a little (and by a little… we mean a lot) tedious - we believe these three tips are a simple way to make the best decisions possible for 2020 and beyond (our second hack has the power to bring in serious dollars but only for the organized… don’t miss it).
1. Enroll in Your Employee Stock Purchase Plan (ESPP)
If you work for a public tech company, it’s very common to have an ESPP program with a 15% discount. And to be honest, that’s a perk that’s hard to beat.
However, it’s important to be mindful of your existing and future equity grants. If you’re actively selling equity awards for the purpose of diversification, you might not be reducing your exposure and risk if you’re also buying and holding ESPP shares.
Participating fully with the intent of selling purchased shares as soon as a plan allows can make a lot of sense. For our clients, it typically balances the need to mitigate concentration risk with the opportunity to fully realize employer benefits. Still feel confused about the best option for you? Don’t hesitate to ask your financial advisor or schedule a free consultation with us.
Enrolling in ESPP reduces your take-home pay so be sure to think through cash flow considerations. Does your budget have sufficient margin to participate in ESPP?
2. Contribute to Retirement Accounts
After enrolling in ESPP, make sure you are participating in your 401k, especially if your employer offers a match. We see people leaving free money on the table way too often and it’s costing them more than they know.
For high-income households, there aren’t many ways to invest such a high amount on a pre-and/or post-tax Roth basis which is why taking advantage of employer matching is really smart.
Want to get even more of a leg up with your investments? You may have heard the term “mega backdoor Roth conversion” at your company and if it’s available to you - don’t skim over the paperwork.
Companies like Snap, Google, and Facebook are providing employees with the ability to make additional retirement contributions beyond the $19k limit (for pre-tax and post-tax Roth 401k contributions in 2019). The exact amount is variable depending upon your situation but the total annual contribution limit to a defined contribution plan in 2019 is $56k. That’s a lot.
Our clients who take advantage of this are generally happy but a common complaint we hear has to do with the hassle to log in each permitted period to initiate the in-plan Roth conversion. Without that, the tax benefits aren’t quite as rosy.
So be warned that it may not be for everyone or set a reminder on your calendar to ensure you don’t forget to move money from your after-tax to a Roth account.
Making after-tax contributions can invoke the pro-rata rule. One thing to check is whether or not you have an existing tax deferred investment account.
3. Create a Strategy for Your Goals
As with most financial decisions - benefit elections are best done with your overall financial plan in mind. Not every benefit offered to you is a good deal for your life-stage or goals and the tax ramifications of your enrollment decisions can surprise you if you don’t have a solid strategy.
If you haven’t sat down with a financial advisor, now is a good time to take advantage of a free consultation. Find an advisor you not only enjoy but someone who will act in your best interest and help you create a clear strategy. In our opinion the best plans aren’t limited to investments or taxation. They include both (and much more).
You deserve to make the most of your open enrollment decisions now - and in the future.
Don’t feel like you have a good plan for success? Schedule a call with us today to get a free (no pressure) review of your enrollment options so you can walk into 2020 with confidence you’re not leaving dollars on the table.
Please review our disclosures and discuss your situation with a financial professional before making any investment decisions.