What Reaching Level 67 at Microsoft Means for Your Finances
Reaching Level 67 is a major career milestone at Microsoft. This advancement brings additional compensation and new ways to save for the future. Here’s what you should know.
Key Takeaways
Level 67 Microsoft employees can expect a sizable salary and increased benefits.
This level unlocks the deferred compensation plan (DCP), which lets you reduce your taxable income and invest in your future.
RSUs are a significant part of Level 67 compensation in addition to a base salary.
Compensation Structure at Level 67
At Level 67, Microsoft's compensation package is comprehensive.
Base Salary
The base salary for Level 67 employees ranges from $171,600 to $258,200, reflecting the high level of expertise and responsibility associated with this level of professionalism.
On-Hire Stock Awards
New hires at this level typically receive restricted stock units (RSUs) starting at $168,000, with the potential for amounts up to $700,000 upon approval. These awards align employees' interests with the company's long-term performance and vest over a specified period.
Annual Stock Awards
Level 67 employees are eligible for annual stock awards, which can reach up to $336,000. These awards serve as a significant component of total compensation, incentivizing sustained contributions to the company's success.
Performance Bonuses
Performance bonuses at this level can add up to 30% of the base salary, depending on individual and company performance. This variable component rewards employees for their contributions and achievements.
Total Compensation
Considering base salary, stock awards, and performance bonuses, the median total compensation for a Level 67 employee is approximately $555,420.
Deferred Compensation Plan
Employees at Level 67 and above can participate in Microsoft's Deferred Compensation Plan (DCP). The DCP lets you defer a portion of your income to future years to reduce your current taxable income and bolster your retirement savings.
Enrollment Periods and Deferral Limits
Using the DCP, you can defer up to 75% of your salary and 100% of your annual bonus. The enrollment period for salary deferrals is November, and the enrollment for bonus deferrals is May. Both deferral elections take effect the following year.
Investment Options
Deferred amounts can be allocated among various investment options, similar to those in Microsoft's 401(k) plan. However, these are "deemed investments," meaning the funds are not directly invested but are tracked to mirror the performance of selected investments.
Distributions
At the time of deferral, employees must specify when and how they wish to receive distributions:
Timing: Distributions can commence upon termination of employment or at a predetermined future date, with a minimum deferral period of 12 months.
Form: Payouts can be received as a lump sum or in annual installments over three to 15 years.
Changing your distribution elections isn’t easy. Changes must be made at least 12 months before the scheduled distribution and must defer the payout by an additional five years.
Tax Implications
Contributions to the DCP reduce taxable income in the year of deferral. Distributions are taxed as ordinary income upon receipt, which can be advantageous if taken during retirement when one might be in a lower tax bracket.
Potential Risks
Unlike the Microsoft 401(k) plan, deferred compensation under the DCP is an unsecured liability. In the unlikely event that the company went bankrupt, your deferred funds could be lost. However, many employees consider this risk worth it for the financial benefits that the DCP provides.
However, many employees consider this risk worth it for the financial benefits that the DCP provides.
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Benefits for Level 67 Employees
In addition to an impressive salary and access to the DCP, Level 67 employees can take advantage of the many benefits Microsoft has to offer.
401(k) plan: Microsoft 401(k) plan matches 50% of all employee contributions up to the IRS limit, effectively giving you free money for your retirement fund.
Mega backdoor Roth conversion: The mega backdoor Roth program lets you make additional after-tax contributions to your 401(k), which can then be converted into a Roth account, enabling tax-free growth and withdrawals in retirement.
Employee stock purchase plan (ESPP): Using the ESPP, you can purchase company stock at a 10% discount. Then, you can sell the discounted stock for an immediate return or hold it for long-term gains.
Life insurance: Basic life insurance coverage is provided at no cost, with options to purchase additional coverage. Short-term and long-term disability insurance ensure income protection during unforeseen circumstances.
Medical, dental, and vision insurance: Employees have access to various healthcare plans, including high-deductible health plans paired with a health savings account (HSA).
Wellness programs: The Perks+ program reimburses up to $1,500 annually for wellness-related expenses such as gym memberships, fitness classes, massages, and financial advising.
Mental health support: Resources are available to assist employees in maintaining mental well-being, including counseling services and stress management programs.
Training and education: Microsoft supports continuous learning through financial education, tuition assistance, and access to a variety of training programs, enabling employees to advance their skills and careers.
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Tips for Optimizing Your Finances
Reaching Level 67 at Microsoft is a golden opportunity to secure your financial future. Here are some strategies to help you make the most of your new compensation and benefits.
1. Maximize Your Retirement Contributions
Take full advantage of Microsoft's 401(k) match by contributing up to the IRS limit. This ensures you're benefiting from the "free money" the company provides. Don’t forget to explore the mega backdoor Roth option to increase your retirement savings with tax-free growth potential.
2. Take Advantage of the DCP
Deferring a portion of your income can significantly reduce your tax burden and help you save more for retirement. Evaluate how much of your salary and bonus you can defer through the DCP without affecting your current lifestyle, and consider making an investment. (Just keep in mind the potential risks associated with deferred compensation.)
3. Plan Your RSU Vesting and Taxes
RSUs are a major part of your compensation at Level 67, but they also come with tax implications when they vest. Work with a trusted financial advisor to build a strategy for managing this taxable income. For example, you may want to sell a portion of your shares right away to diversify your portfolio by reinvesting the proceeds in other stocks.
4. Utilize the ESPP for Short- and Long-Term Gains
The 10% discount on company stock offered through the ESPP can provide an immediate return on investment. You can either sell the stock right away for a quick profit or hold onto it as part of your long-term investment strategy. For most employees, combining the two strategies will give you the best of both worlds.
5. Prioritize Your Health Benefits
If you choose a high-deductible health plan, maximize contributions to your health savings account (HSA). HSAs offer triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free.
6. Use Your Wellness and Education Benefits
The Perks+ reimbursement program and tuition assistance are valuable resources to enhance your personal and professional growth. Consider using these benefits for financial planning, skill-building courses, or certifications that align with your career goals.
7. Plan Your Tax Strategy
With the increased income at Level 67, your tax liability will also rise. Explore strategies such as charitable donations, tax-loss harvesting, and utilizing pre-tax accounts to minimize your taxable income. Consulting with a financial advisor who specializes in high-net-worth planning can help you create a comprehensive tax strategy.
8. Work with a Fiduciary Financial Advisor
Navigating the complexities of compensation and benefits as a Level 67 Microsoft employee can be challenging. A fiduciary financial advisor can take the guesswork out of your planning and put you on firm footing.
Fiduciary advisors are legally obligated to act in your best interests and disclose any conflict of interest they may have. Your advisor can help you develop a financial plan tailored to your unique needs and goals, including:
Maximizing your retirement fund contributions
Optimizing your investment strategy
Managing RSU awards
Fine-tuning your tax plans
That way, you can make informed decisions for a better future.
Prepare for Your Golden Years with Help from TrueWealth
Reaching Level 67 at Microsoft is an exciting milestone that brings unique opportunities to grow your wealth. If you're looking for expert guidance to navigate the financial opportunities that come with this promotion, we’d be happy to help.
At TrueWealth Financial Partners, we help hardworking professionals like you make the most of their retirement benefits. Our fiduciary financial advisors can give you the help you need to reach your financial goals.
Schedule a free consultation today and take the next step toward financial confidence!
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FAQs
What are RSUs, and how do they factor into compensation?
RSUs, or restricted stock units, are company shares granted to employees as part of their compensation. They vest over a specified period, aligning employees' interests with the company's long-term performance. At Level 67, new hires typically receive on-hire stock awards starting at $168,000, with potential amounts up to $700,000 upon approval.
What are the enrollment periods for the Microsoft DCP?
Enrollment for salary deferrals occurs in November, with elections taking effect the following January. Bonus deferral elections take place in May, affecting bonuses paid in September of the following fiscal year.
How risky is it to participate in the DCP?
The DCP is an unsecured liability of the company, meaning that in the unlikely event of Microsoft's insolvency, deferred amounts could be at risk. However, the risk of Microsoft going bankrupt is unlikely, and many employees choose to use the DCP to enhance their retirement savings. A financial advisor can help you decide if the DCP is right for you.
How does the mega backdoor Roth feature integrate with my 401(k)?
The mega backdoor Roth program lets you contribute after-tax dollars to your 401(k), which can then be converted to a Roth account, enabling tax-free growth and withdrawals in retirement. This feature is especially useful for high earners looking to max out their tax-advantaged retirement savings beyond traditional contribution limits.
Why should I consider working with a fiduciary financial advisor after reaching Level 67?
A fiduciary financial advisor is legally obligated to act in your best interest. They can help you navigate the complexities of your compensation and benefits, develop a personalized financial plan, optimize your investment strategy, and ensure your financial decisions align with your long-term goals.