Microsoft Deferred Compensation (DCP) is an exclusive benefit available to Microsoft employees who are Level 67 or higher. Contributions to your DCP reduce taxable income in the year of the deferral and can be invested into a wide range of funds. With careful planning, this income will be distributed at a later time, presumably when you are in a lower income tax bracket.
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MICROSOFT DCP RESOURCES: avieradvisors....
MICROSOFT RESOURCES www.avieradvis... More information for Microsoft employees on their benefits including the Microsoft 401k plan, Mega Backdoor Roth, Sustainable Investing, and RSUs.
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Video highlights:
00:47 Deferred Compensation Plan (DCP) limits
01:14 How much should you defer?
01:50 Using your RSUs to supplement cash-flow
03:05 How should you structure your DCP payouts?
04:22 Example of income planning
05:23 Common errors to try and avoid
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SCHEDULE TIME to discuss MICROSOFT DCP: calendly.com/a...
We will talk through the following:
-- Strategies for reducing your taxable income and deferring taxes
-- Maintaining your cashflow to cover your lifestyle expenses
-- Developing a comprehensive payout strategy
-- Leveraging Microsoft DCP along with your other compensation benefits
FIND Microsoft DCP resources: avieradvisors....
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Learn more about Microsoft DCP
There are only two times a year to enroll. DCP enrollment deadlines:
- May 1 31: Defer up to 100% of next year’s bonus
-- November 1-30: Defer up to 75% of next year’s salary
DCP is similar to your Microsoft 401(k). Your 401(k) contributions and DCP contributions can reduce your taxable income. You can invest the funds in your DCP account (like you can in your 401(k)) for future growth. The dollars contributed to your Deferred comp plan grow tax deferred.
--Tax Planning Considerations for your DCP Deferral and Payout
For each deferral (each year that you defer salary/bonus), you must decide when you want to start receiving your money and over what time frame. Typically, you choose either a lump sum or to receive it over a 3-15 year installment plan.
As money is distributed, you are taxed, so it’s important that you consider how much taxes you’re willing to pay each year after your withdrawal begins. For example, if you decide to defer a portion of your 2023 salary, you need to decide now what year you will start receiving those funds and for how long.
You may be planning to retire at 65 - you can choose to receive the entirety of this year’s deferred comp at that time. You may also choose to break that payment up over the course of a few years.
Other important tax planning considerations for your DCP distributions include factoring in future sources of income such as Social Security and required minimum distributions (RMDs). Depending upon your situation and tenure at Microsoft, you could be impacted by Microsoft’s 55/15 rule during the first 4 years of your retirement. This rule applies to employees who are 55 years old with 15 years of service at the company (or are age 65). When you meet these criteria, all stock grants, more than one year old, will continue to vest, even if you leave the company.
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Avier Wealth Advisors
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10655 NE 4th Street, Suite 500
Bellevue, WA 98004
info@avieradvisors.com
Website: avieradvisors....
We focus on providing comprehensive financial planning and investment advisory strategies for tech professionals and their families.
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