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Signatory deferred compensation plan

- Hello, I'm Dave Welty, I'm the Managing Director at Avier Wealth Advisors. Our mission is to help you leverage the incredible benefits that Microsoft offers you in order to help you grow your wealth in the most efficient way possible. First, I want to show you how you can save just a ton of money on taxes each year by taking advantage of the Deferred Compensation plan available to you if you're level 67 or above. This is also important if you're level 65 or 66 and you think you're gonna be promoted up to a 67 at anytime in the future. Get your hands around this wonderful program now. Let's review the purpose behind a Deferred Compensation plan. Deferred Comp works much a pre-tax 401(k) plan to reduce your taxable income. Any amount you contribute to a Deferred Compensation plan reduces your taxable income dollar for dollar. These contributions can be invested for growth and used down the road for income in retirement. Now let's take a look at the annual timeline of financial events you need to be aware of. Starting this year, in the month of May, you get to make the Deferred Compensation election for your cash bonus in September of 2021. You're allowed to defer up to 100% of your cash bonus, whereas you can only defer 75% of your salary. Remember, any Deferred Compensation election you make this year will affect your deferrals and taxable income for next year. In November, along with making your annual benefits election, you have a one-month window to make your Deferred Compensation election for your 2021 salary. At the end of May, and again in August, November, and next February, you have stock grants vesting. 22% of those shares are withheld for taxes, and you receive the remaining 78% of the vesting shares in your Fidelity account. However, you can change this withholding percentage if you find you're not withholding enough and you're having a large tax bill at the end of each year. Let's review how most people use their various components of income. Most folks have their salary and cash bonus directed to their bank account and use this to fund their ongoing expenses. They also commonly allow for all of their stock awards to accumulate in an investment account and hold those shares of stock for the long-term. Given the benefits Microsoft offers, we would encourage you to flip this. You should direct the majority of your salary into investment accounts such as Deferred Compensation or your 401(k). In order to cover living expenses, you should sell shares of stock as they vest, so you don't run into capital gains tax issues, and use these proceeds. I'll show you why. There are parts of your income that you can control for tax purposes, and parts you simply cannot. With your salary and cash bonus, you have control as to how much is recognized as taxable income. However, you have no control over taxable income generated by vesting shares of stock. Your income may look similar to this, and if everything is recognized as taxable income, you could be paying upwards of $200,000 in taxes each year. However, you could reduce your tax bill significantly. How do you do this? You can accomplish this by maxing out your pre-tax 401(k) contribution, by doing so you reduce your taxable income by $19,500 if you're under the age of 50, which could reduce your tax bill by approximately $7,000. This is nice, but you can go even further and defer roughly $150,000 into a Deferred Compensation account. By doing so, you could reduce your tax bill by an additional $55,000 each and every year going forward. If you want to talk more, please reach out to us. Avier is here to help you manage these complicated, complex benefits that Microsoft provides you. We're here to help you maximize these benefits. Thanks for listening, and have a great day.