Microsoft 401(k) FAQs
Microsoft offers a comprehensive 401(k) plan designed to help employees save for retirement effectively. Here are our answers to some of the most common questions about the Microsoft 401(k) plan.
What is the Microsoft 401(k) plan?
The Microsoft 401(k) plan is a retirement savings program that lets employees contribute a portion of their salary to save for the future. These contributions can grow over time through various investment options, providing financial security during retirement.
Are contributions made on a pre-tax basis?
Standard contributions to the Microsoft 401(k) plan are made on a pre-tax basis. This reduces your taxable income in the year they are made, providing immediate tax savings. The funds then grow tax-deferred until withdrawn in retirement, at which point they are taxed as ordinary income. This option is beneficial for employees who expect to be in a lower tax bracket during retirement.
Can I make Roth contributions to the Microsoft 401(k)?
Yes, Microsoft’s 401(k) plan allows employees to make Roth contributions. These are made with after-tax dollars, and qualified withdrawals in retirement, including both contributions and investment growth, are tax-free. This option is ideal for employees who anticipate being in a higher tax bracket during retirement or who prefer the certainty of tax-free withdrawals.
What are the contribution limits for the Microsoft 401(k) plan?
For the 2025 tax year, employees under 50 can contribute up to $23,500 to their 401(k) accounts. Employees aged 50 and above can make an additional catch-up contribution of $7,500, bringing their total contribution limit to $31,000.
How does Microsoft’s 401(k) matching contribution work?
Microsoft matches 50% of employee contributions to the 401(k) plan up to the IRS annual contribution limit. For example, if an employee contributes the maximum allowable amount, Microsoft contributes an additional 50% of that amount. In 2025, this means you can gain an extra $11,750 in retirement savings for free — no strings attached.
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What is the vesting schedule for Microsoft's 401(k) plan?
Microsoft offers immediate vesting for both employee contributions and employer matching contributions. This means that employees have full ownership of all funds in their 401(k) accounts from the moment contributions are made, providing flexibility and security in managing retirement savings.
Does Microsoft offer after-tax contributions and mega backdoor Roth conversion?
Yes, Microsoft allows employees to make after-tax contributions beyond the standard pre-tax and Roth limits. These after-tax contributions can be converted to a Roth 401(k) through an in-plan conversion, a strategy often referred to as the "mega backdoor Roth." This feature enables employees to contribute additional funds that can grow tax-free, significantly enhancing retirement savings.
What investment options are available in the Microsoft 401(k) plan?
The Microsoft 401(k) plan offers a diverse range of investment options, including bond funds, equity funds, target-date funds, and a self-directed brokerage account. This variety allows employees to tailor their investment portfolios to align with their individual retirement goals and risk tolerance.
Does Microsoft offer a self-directed brokerage option in its 401(k) plan?
Yes, Microsoft's 401(k) plan includes a self-directed brokerage account option, known as BrokerageLink, through Fidelity Investments. This feature allows employees to invest in a broader range of mutual funds and other securities beyond the plan's standard investment options, offering greater flexibility for those who wish to tailor their investment strategies more precisely.
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Are there any fees associated with Microsoft's 401(k) plan?
The Microsoft 401(k) plan is known for its low expense ratios, with an investment and administrative expense ratio of approximately 0.04%. This low fee structure helps employees retain more of their investment returns over time.
Can employees take out loans against their Microsoft 401(k) accounts?
Yes, the Microsoft 401(k) plan permits participants to take out loans against their account balances. While borrowing from your 401(k) can provide access to funds, it's important to consider the potential impact on your retirement savings and to consult with a financial advisor before proceeding.
What happens to my Microsoft 401(k) if I leave the company?
Upon leaving Microsoft, employees have several options regarding their 401(k) accounts:
Leave the money in the plan: You can choose to keep your funds in Microsoft's 401(k) plan, allowing them to continue growing tax-deferred.
Roll over to another account: You may roll over your 401(k) balance to a new employer's plan or an individual retirement account (IRA), maintaining the tax-advantaged status of your savings.
Cash out: While it's possible to withdraw your funds, doing so may result in taxes and early withdrawal penalties, depending on your age and circumstances.
It's advisable to consult with a financial advisor to determine the best course of action based on your individual retirement goals and financial situation.
How can I maximize my Microsoft 401(k) benefits?
To fully leverage the benefits of the Microsoft 401(k) plan, employees should consider the following strategies:
Maximize contributions: Aim to contribute at least up to the annual limit to take full advantage of Microsoft's matching contributions.
Use the mega backdoor Roth: If financially feasible, make after-tax contributions and convert them to a Roth 401(k) to benefit from tax-free growth.
Diversify investments: Select a mix of investment options to protect yourself from market volatility and give yourself more reliable returns.
Regularly review contributions: Stay informed about annual contribution limit changes and adjust your contributions accordingly.
Seek professional advice: Consult with a fiduciary financial advisor to develop a personalized strategy that aligns with your retirement objectives.
Can I get professional help for my Microsoft 401(k)?
Yes! Planning for retirement is a significant step toward securing your financial future. At TrueWealth Financial Partners, we specialize in providing personalized financial planning and investment management services to help you navigate your retirement journey with confidence.
Our team of experienced advisors is dedicated to understanding your unique financial goals and crafting strategies tailored to your needs. Whether you're looking to maximize your 401(k) benefits, explore investment opportunities, or develop a comprehensive retirement plan, we're here to guide you every step of the way.
Take control of your financial future with the support of TrueWealth Financial Partners. Schedule a consultation today and discover how we can help you reach your goals.
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