Microsoft Benefits Package

Microsoft Benefits Package

What is an ESPP (Employee Stock Purchase Plan)?

Employee Stock Purchase Plans allow you the option to contribute part of your paycheck (post-tax) to buying Microsoft stock. Microsoft sets the dates when the accumulated funds will be used to purchase stock.  The stock is then purchased at a discount from the stock market price.
 
Currently, you can buy up to $25,000 worth of company stock per calendar year under the IRS rules.  The IRS allows you to defer all income tax until you sell the stock if the sale meets specific parameters.  This “qualified sale” applies to shares held for more than one year from the purchase date and more than two years from the offering date.
 
A qualified sale will trigger ordinary income taxes on only the lesser of the purchase price discount or actual gain.
 
When would ‘actual gain’ apply? If you have a qualified sale for less than the market value of the stock on the day it was purchased. Any gains above this amount is long-term capital gains.
 
The ordinary income will be reported on your W-2 in the year of sale. 
 
If you fail to hold onto the stock for the above time stated time frame, then your tax treatment is a little different. You will have ordinary income for the amount of the discount you received on the purchase date. This will apply even if you sell the stock for less than what you paid for it. Yikes!

Microsoft's 401(k) Recommendation

Microsoft matches 50% of every dollar you put into your 401(k) up to the contribution limit.   Company contributions are made in Microsoft stock.  I recommend reviewing your 401(k) periodically to determine whether you wish to hold on to the Microsoft stock or sell it to reduce company specific risk.

You may choose a more aggressive or conservative allocation of stock versus bonds held in your 401(k).  This will depend on the risk you can, and are willing, to take with your retirement funds.  The below allocations are based on asset type and expense ratios for each available investment option at the time of review.

The plan recommendations below are based on choices available as of December 31, 2016.

Aggressive Allocation

  • Russell International Growth 25%
  • Russell International Value 25%
  • Vanguard S&P 500 Index 10%
  • Vanguard Russell 1000 Value 15%
  • Vanguard Russell 2000 Growth 11%
  • DFA Small/Mid Cap Value 14%
  • Pimco Total Return 0%

Stock

Moderate Allocation

  • Russell International Growth 15%
  • Russell International Value 15%
  • Vanguard S&P 500 Index 4%
  • Vanguard Russell 1000 Value 11%
  • Vanguard Russell 2000 Growth 7%
  • DFA Small/Mid Cap Value 8%
  • Pimco Total Return 40%

Stock

Conservative Allocation

  • Russell International Growth 10%
  • Russell International Value 10%
  • Vanguard S&P 500 Index 3%
  • Vanguard Russell 1000 Value 7%
  • Vanguard Russell 2000 Growth 4%
  • DFA Small/Mid Cap Value 6%
  • Pimco Total Return 60%

Stock

Health Benefit Plan

What is an HSA? 

A health savings account (HSA) is a tax-advantaged savings account available under the high-deductible health plan option.  Funds are contributed to this account on a pre-tax basis and can grow tax-deferred over time.  You may also use these funds for qualified medical expenses now, and for retirement later.  If you are maximizing your 401(k) contributions, this may be a good option for further tax deferral.

What is an FSA?

A flexible spending account (FSA) is tax-advantaged account available under some plan options.  Funds are contributed to this account on a pre-tax basis and can be used for eligible medical expenses within the plan year.  These funds cannot be accessed after the plan year.  If you have set qualified medical expenses you will be spending during the year, this option may be helpful.

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Other questions?  Reach out to me at rjconner@seedsafefinancial.com

Disclosures

This information is provided by SeedSafe Financial, LLC, a registered investment advisor, and is believed to be from reliable sources, but no guarantee is made as to accuracy or completeness. The investment securities and strategies discussed are not suitable for all investors. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

SeedSafe Financial, LLC is not an authorized representative of the company sponsor and its retirement plans.