What I wish I knew about ESPP and RSUs sooner

https://blog.demofox.org/2024/03/17/what-i-wish-i-knew-about-espp-and-rsus-sooner-company-stock-benefits-2024-usa-california/

by ingve • 2 years ago

88 137 2 years ago

blog.demofox.org

zdw• 2 years ago

Let's say you were going to donate stock to charity from either of these sources (ESPP, RSU)

Is there any way to avoid taxation when it becomes yours to donate, or to be refunded the money used to pay taxes that you no longer owe as you don't own the stock?

joshuamorton2• 2 years ago

Yes, you'd set up a Donor Advised Fund, transfer the stock to that fund, and sell it from within the fund, or donate the stock directly to an large established nonprofit that is capable of accepting donations of stock.

skellington6• 2 years ago

I don't think that's what the person is asking. He's asking if you can avoid ALL taxes on RSUs by donating all of it. And the answer is NO.

You can't transfer an RSU grant and when it vests, the taxes are automatically paid for by the company (RSU manager) selling 33% (varies) of the shares.

Once you have the shares you can do the above and can avoid taxes on the gains of post-tax shares.

loeg3• 2 years ago

No.

astrange• 2 years ago

Donating appreciated stock is better than donating cash, but 1. only if you itemize 2. it can never save you money. You have to want to donate either way; it's just a slightly more efficient way to do that.

busterarm4• 2 years ago

RSUs aren't "extra" pay though. They are shares in lieu of cash compensation. At some companies you can negotiate to get all of your RSU compensation as cash instead and that money will be part of your base compensation, which will make your taxes simpler and might be better for you in the long run.

Atrix256• 2 years ago

If you sell your rsus when they vest its the same result

the-grump• 2 years ago

It's not. RSUs are taxed in the state in which they're granted, at least at my company. Not where they vest.

lopkeny12ko2• 2 years ago

I have never heard of any company who would entertain substituting RSU compensation for cash. If you asked your Google recruiter for 500k in cash instead of 250k in base and 250k dollars in annual RSUs, you'd be laughed out of the room.

RobRivera2• 2 years ago

Iirc Netflix did this

busterarm4• 2 years ago

It's not FAANGs that do this, it's slightly smaller companies.

I have done this. My current employer offers this option if you ask for it.

Also when Facebook was first picking up Data Scientists I know people who were negotiating 500k all cash packages.

vgivanovic• 2 years ago

The demofox.org page I see has blue text against a black background - unreadable. No other web page I can recall has this color combination.

olliej• 2 years ago

Regarding this quote on ESPP programs:

If the company does poorly, the employees with ESPP will lose, and get their money back at a reduced rate, which is great for the company, effectively having to pay less payroll if things are going poorly.

This doesn't match my experience. I've obviously not worked at every country on earth/in the US but the ESPP programs I have used have always been a 15% discount on the low point of either the start or end of the ESPP period. e.g. it's a near guaranteed 15% gain (obviously stock market so no such thing as a real guarantee[1]) because even if the stock price has dropped, because you're still getting the stock at a discount on the reduced price. Assuming you have no reason to believe there's a chance of a sudden 15% (or whatever) stock price drop, your employer is publicly traded (and has trade volume), and they are doing "vs lowest price", ESPP is one of the lowest risk ways of getting a 15% gain on your funds.

[1] e.g. because stock sales/purchases are still inexplicably not instantaneous it's conceivable something terrible could happen in the multiday period between purchasing your shares at a discount, and being able to sell them.

kshacker2• 2 years ago

Echoing your thoughts and expanding on them.

The multi-day period is usually "1" trading day.

You get shares on a Monday, you can sell them next day on the Tuesday.

You get shares on a Friday, you can sell them next trading day on the Monday.

You get shares on a Friday before a Monday public Holiday, you can sell them next trading day on the Tuesday.

Of course there could be exceptions, but that's how it generally works, and basically locks you in from the time of allotment till the time the market opens. So the risk you have is of calamitous events happening during that time - Black Monday or something like that, but otherwise it would be rare for markets (company stock) to fall 15% and the entire ESPP allocation to be a net loss.

skellington6• 2 years ago

Yeah basically it's 15% worse case if your company stock is on a consistent downward or sideways trajectory. And 15%+ is the stock is generally rising.

There is always a small black-swan chance I guess. In all the places I've worked, the shares are purchased at the close of the trading day and available to sell by the next morning.

waych• 2 years ago

[1] e.g. because stock sales/purchases are still inexplicably not instantaneous it's conceivable something terrible could happen in the multiday period between purchasing your shares at a discount, and being able to sell them.

I recall participating in an ESPP where each time it vested (each 6 months) ended up being in a trading black out window, where we had to wait until Earnings Release + 3 days before being able to dump the stock. Lost that 15% gain just about every time.

skellington6• 2 years ago

That's relatively rare in tech, but some companies are very touchy about their trading windows. Usually smaller companies, lower floats, lawyers trying to manage insider trading risks, etc..

For larger companies, it's almost always -- ESPP purchase happens, you can sell it immediately.

cpitman• 2 years ago

The actual return on an ESPP is actually way better than the discount too. You get that discount, even for the money you contributed most recently. A 15% discount is actually a 17% return (1/.85), and you get that return on money you contributes 6 months ago and also the money contributed at every point up to the last pay check included. So if that last one was 2 weeks before the purchase, you get ~17% in 2 weeks.

Overall, it works out to a 90% annual return even if the stock stays steady or goes down. If it goes up, all the better.

Unfortunately, its not like you can "keep money" in an ESPP and actually earn that 90% over a longer period of time, but it's a great deal for short term illiquidity.

brewdad4• 2 years ago

I worked for a company that offered ESPP decades ago. The stock had an odd habit of dipping in the middle 3 months of the period with price peaks at either end. While continuing to steadily decline YoY. The company went bankrupt about three years after I finally left. There were very few employees who made any money off of the ESPP shares.

tsimionescu• 2 years ago

15% discount is by no means the only common ESPP benefit. The company I work for doesn't offer any discount at all, the only benefit is buying at the minimum price over the purchase period.

Also, the value has to be compared to other uses of your money - with an ESPP you're essentially lending money to your company for some time, and to know if it's worth it for you you need to compare to other uses of that money. It's indeed hard to beat a minimum 15% discount (17% return on investment as someone else explained), but not impossible. And with ESPP plans that don't offer any guaranteed discount, if the stock is going down, you'll be better off even just depositing the money.

hamburglar3• 2 years ago

First off, it’s not always 15%. My current employer only gives a 5% discount. Second, the “look back” feature where you get the best of the starting and ending prices is also far from universal. My current employer also just gives you the closing price, reduced by the 5% discount.

So there are ESPP programs that aren’t such a slam dunk and actually just slightly edge out current money market rates. Add to this that they also cap the amount you can put into it fairly low and it looks even more underwhelming. Will you take a 5% bump on 6% of your income? Well, sure, I’m not going to turn it down but I’m also not throwing a party over it.

Apreche• 2 years ago

The fact that this persons uses the term "push you into a different tax bracket" suggests they don't understand how tax brackets work.

hippich• 2 years ago

I am not finding anything suggestive about it, except repetition. Tax brackets awareness is important when you have more thing going on besides your w2. Especially for things that can't wait till tax return due date, like Roth conversion.

stingrae• 2 years ago

the concept of additional income "push you into a different tax bracket" is a misnomer. Only the income above the bracket line gets taxed at the higher rate. There isn't a reason to avoid getting more income in a given year unless you have a way to defer it (like some retirement accounts allow)

danbala• 2 years ago

came here to post exactly that ;)

throwaway2847• 2 years ago

Being pushed into a different tax bracket is something people should always keep in mind. Different tax brackets affects the calculus of which 401k to use (post/pre tax), decisions about liquidating tax deferred assets, it goes on

skellington6• 2 years ago

No it doesn't. Not for people who earn tech salaries which is what this article is pointed at. You're always going to max out pre-tax 401k first, then backdoor 401k post-tax after if you have enough spare income.

Moving up a bracket doesn't change all the previous brackets, it just affects money past that level. It's not like a hard line that you cross and it changes the whole picture.

If you think otherwise, give us a scenario where is matters.

RobRivera2• 2 years ago

Was thinking the same thing

tengbretson• 2 years ago

How would this not be relevant when discussing income that might otherwise be able to be spread over time?

tzs• 2 years ago

There is indeed a widespread misconception that if more income pushes you into a higher bracket it might make you total after tax income go down. Many people think if you are in the N% bracket it means you tax is N% of your taxable income.

Here are a couple of graphs that show how it actually works: https://imgur.com/gallery/aS1zJg7

The first shows what tax would be on a single person in 2023 whose income is entirely salary and whose only deduction is the standard deduction, for income up to $1 million.

The second shows what the tax would be as a fraction of your total income.

kyteland3• 2 years ago

While income tax and short term capital gains do work like that (an increasing marginal rate) long term capital gains (LTCG) do not. They are paid fully at the bracket you fall in to. When calculating tax rates (US federal, states may vary) you apply income first and capital gains second to determine your rate.

If you're filing single the LTCG threshold is $518,900 in 2024. So as an example, if you made $400,000 in income and $118,000 in LTCG that would put you just under the threshold to pay 15%. you'd calculate ordinary income tax on the $400,000 and then you'd pay $118,000x15%=$17,700 in LTCG.

But if you made just $2000 more in LTCG you'd pay much more as you'd be bumped into the higher 20% rate. You'd end up paying $120,000x20%=$24,000 in LTCG taxes, an increase of $6300 in taxes on just and additional $2000 in gains.

polishdude20• 2 years ago

I always thought that if that was true, our whole system of promotions, working hard, working better etc would come crumbling down.

ideamotor• 2 years ago

This comment suggests you don’t understand how taxes work in many scenarios. If I receive more ordinary income (whatever the source and reason it is treated as such) it is added to the year I received it. To minimize taxes, I will mot want to receive this additional ordinary income during the year I already would have already had the most income. That’s what being pushed into a different tax bracket means.

Example: year one 50k income 22% marginal tax. Year two 180k income 32% marginal tax. You have 100k more ordinary income. You will pay less tax if it occurs in year one.

Yes for this to matter you need to have some control over the order of payments. This is most commonly a 401k. Otherwise, it’s likely to be relevant through some form of business ownership. Perhaps you have a big contract coming in, or you are self employed, or you are receiving a bonus, or perhaps you own some shares where you could elect to sell when they only qualify as ordinary income as discussed by the original article.

JKCalhoun• 2 years ago

I understand the sentiment, too many people have this crazy idea that they might be on the upper cusp of their tax bracket and a tiny bit more income will somehow end up costing them more.

But it would be sad if the entire article is dismissed by HN readers just because they tripped on the one line you point out.

Imagine instead that the author said (and I would argue they probably meant), "push more of your income or benefits exercised into a higher tax bracket".

I think this is what most people mean since it is behind the strategy of holding on to benefits until you are retired (or in a lower tax bracket) before exercising them.

randerson2• 2 years ago

What you say is true most of the time, but New York State's top tax brackets are flat rates. An income increase can indeed result in you netting less.

ketchupdebugger• 2 years ago

I mean, if you were on low income benefits this might be an issue, where earning more may cause you to lose benefits. But I doubt anyone working in tech is facing that dilemma

jmvoodoo2• 2 years ago

I am not an accountant or attorney, so you should do all of your own research. However any discussion or information about RSUs that doesn't mention an 83b election is at best incomplete.

zrail• 2 years ago

You can't make an 83b election for RSUs. RSAs yes. Option grants for sure. RSU taxation is very straightforward compared to those. They count as W-2 income when they fully vest and turn into shares. There isn't anything to elect as 83b because they don't get any special tax treatment after that vesting date.

cjbprime• 2 years ago

You appear to be confusing RSUs with stock options.

jmvoodoo2• 2 years ago

Actually it looks like RSAs. I didn't even apparently know that RSUs were different as I've always received RSAs and thought they were the same thing (and in fact they had been called RSUs, but the structure looks like RSAs as defined here)

PopAlongKid8• 2 years ago

A subtle point that confuses many: 83(b) election only applies to property that has been transferred to you but not vested.

jjav2• 2 years ago

However any discussion or information about RSUs that doesn't mention an 83b election is at best incomplete.

You can't 83b RSUs.

beau_g3• 2 years ago

This article doesn't seem to say anything beyond the obvious, but here's what I wish I knew -

- Be conscious of what is going on with sell to cover on RSUs if you go that route, especially shortly after you joined a company or vesting a new grant these will also be sold at short term gains (if the stock went up), also going towards you taxable income. This is an easy way to end up with a surprise monster tax bill. I prefer to always pay the taxes in cash if possible to make everything simpler.

- Make sure to plan to pay quarterly taxes if the stock is rising/you want to sell a fair bit to not get stuck with both a big bill at tax time and penalties

-Short term losses can offset short term gains, long term losses can offset long term gains, but they can't offset each other

-DO NOT FORGET TO ADJUST YOUR COST BASIS ON RSU SALES WHEN FILING TAXES

fotta• 2 years ago

Be conscious of what is going on with sell to cover on RSUs if you go that route, especially shortly after you joined a company or vesting a new grant these will also be sold at short term gains (if the stock went up), also going towards you taxable income. This is an easy way to end up with a surprise monster tax bill.

I don’t think this is true? My understanding, from my company which mandates sell to cover on vest, is that the cost basis is the price on the day of vest. The shares that are sold to cover are sold at the same price so there are no gains or losses and the amount that is sold is (in theory, if you’ve set it up this way) equal to your marginal tax rate so you end up paying around the correct amount to not have a huge tax bill.

If you set your sell to cover % very low, then yes you will have a large tax bill because the vest value is treated as ordinary income and taxed at that rate. I do know some people at my company that intentionally set it to the lowest possible % and invest the difference while paying quarterly estimated tax payments, but it’s too much of a hassle for me personally.

beau_g3• 2 years ago

Perhaps this only happened to me from the difference in market fluctuations in the day or two between vest and the sale (this happened to be in 2020 when my company was on a heater). Or maybe etrade allows you to sell shares from a different grant than the one vesting to cover and I didn't realize? In either case in 2020 it seemed like I got some rich guys W2 instead of mine and most of my sales were just sell to cover. I find it ultimately more simple to do the tax payment in cash rather than also involving a stock sale on top. Interesting you company mandates sell to cover, or do you just mean that is the default?

lopkeny12ko2• 2 years ago

DO NOT FORGET TO ADJUST YOUR COST BASIS ON RSU SALES WHEN FILING TAXES

Say more? Why would I ever want to adjust my cost basis to something other than the shares' FMV at vest (which, in my experience, is always the default)?

beau_g3• 2 years ago

With my (and everyone else at my companies) setup with etrade, you get a 1099, and then later an addendum with the adjusted values. Turbotax by default tells you to enter the 1099 sales, and after entering and submitting each row, you see the chance to adjust the cost basis, which you must enter manually from the addendum. Perhaps other brokerages have a more elegant setup. If you don't adjust you will be double taxed. This would likely be obvious to you if you sold a lot of shares, but if you just did some small sales, I can easily see someone accidentally double taxing themselves.

stouset13• 2 years ago

In some company setups, your company reports the vested shares as income on your W-2. They also report your RSUs as having a $0 cost basis. This results in being taxed twice.

E*TRADE at least provides an addendum that lets you know the adjusted cost bases to report to the IRS.

In my case this happens for RSUs and—I believe—not for ESPPs which are reported correctly out the gate.

stouset13• 2 years ago

Be conscious of what is going on with sell to cover on RSUs if you go that route… these will also be sold at short term gains (if the stock went up)

These will be sold at exactly the value you acquired them at, meaning there are no gains whatsoever.

guitarsteve• 2 years ago

I’m pretty sure my sell-to-cover RSUs take a day or few to settle, resulting in a small but nonzero gain or loss.

The details may depend on the employer + brokerage.

wombat-man• 2 years ago

The cost basis thing was always more of a problem for me with ESPP. However TurboTax imported the sale data the cost basis would be 0. For some reason it always took me 2 or 3 tries to find where to put in that info in TurboTax.

nlawalker2• 2 years ago

Yes, I have always had the same problem with ESPP lots with TaxAct, importing data from Fidelity. Fidelity reports a non-zero but incorrect cost basis, but for some reason the importer doesn't like those line items and imports them as zero.

I've never had a problem with cost bases for RSUs, they get imported just fine.

TheDudeMan• 2 years ago

Which part did you not know?

mkoryak• 2 years ago

The "what" part

stouset13• 2 years ago

Again, if you believe the stock is going to go up, and you want the stock, go ahead and keep these RSUs.

I would caution against this and just say: sell your RSUs and ESPPs immediately upon vesting. There's an argument against doing so for ESPPs—especially ones that have appreciated—due to reducing your tax bill. But for most cases, the difference in your tax bill just isn't worth the additional exposure of your net worth to your company's volatility.

I would further caution that it is far too easy to overweight what you think you know about your company when projecting its performance and severely underweight factors that you don't have any clue about. Your company's tech stack might be incredible and the product is a hit, but the sales team is nonexistent and your biggest competitor is two months away from eating your lunch. Or your product is complete shit but the CEO has been quietly negotiating a deal with Google on the side for 25% over market price. Or your company is executing at the top of its game and is completely unbeatable… until an unforeseeable market correction puts it out of business six months later.

As much as you think you know, you have absolutely no idea what your company's stock price is going to do over the next month, quarter, or year. If you happen to be in a position where you actually know, you're going to be bound by significantly stricter insider trading policies than just your company's standard trading windows.

01100011• 2 years ago

100% agree. Don't put all of your eggs in one basket.

That said, by following this advice, I've now got $800k post-tax cash vs $4-5 million in stock, assuming I would have held on to my shares. Oh well.

eloisant3• 2 years ago

"Don't put all of your eggs in one basket" doesn't mean "stay away from that specific basket".

There is a middle ground between holding everything and selling as soon as it vests.

stouset13• 2 years ago

I've now got $800k post-tax cash vs $4-5 million in stock

Of course that's true of any investment though. With that $800k in cash, you could have bought any stock. Including your employer's! And if someone is going to beat themselves up over not holding RSUs ("I knew it was going to go up!") that same logic would warrant putting even more money into company stock.

On the flip side, I was holding on to some ISOs that were very nearly bringing me to my retirement stretch goal. I just wanted to squeeze out 5% more. That was December 2021. Within a month or two they'd dropped to less than 25% of their value, and I lost well over six figures. The rest of the market recovered, my company didn't. If I'd sold instead of holding on for just a little bit more, I'd be retired today. C'est la vie!

GaryNumanVevo• 2 years ago

I'm on the flip side, I have around $3 million in stock from my former employer that I'm trying to sell off as tax-advantaged as I can. It's tough

eloisant3• 2 years ago

My approach is to sell ESPP right away (as they come out of my pay check and I still get a nice bonus out of it) however I usually keep my RSU and progressively sell to limit the risk.

That worked well, I made a lot of money from sell at $100 stocks I got at $25.

AdamN• 2 years ago

That gain is just 'resulting'. More likely odds of success to sell 100% of RSUs and invest that money in some other company (or fund).

kyteland3• 2 years ago

I do it the opposite way myself. If the stock is increasing there's a nice tax bonus on most ESPP plans by holding it 2 years from the start of the plan. If you have a lookback provision, by holding 2 years you shift more of your gains from ordinary income into long term capital gains (LTCG).

So a common example is a 6 month buying period with a lookback and a 15% purchase discount. Say the stock was $10 at the start of the period and ended at $12. The lookback period takes the lower of those two for purchase. A common misconception is that it is the lowest price anywhere in the 6 month purchase period, but no it's just the start and end values.

So if you sold right away you'd end up buying at min($10,$12)x85% = $8.50. You'd sell at $12 (so that's your cost basis) and have $3.50 in ordinary income tax per share.

Now say you waited 1 year to get the LTCG. In that time it went up to $13 a share. You sell and now you have $4.50 in gains. But you're still before the 2 year period so your cost basis is $12 and the split is $3.50 in ordinary income and $1 in LTCG.

Now say you waited 2 years. This is where the tax advantage happens. Your cost basis is adjusted to the min($10,$12) value. Even if the price is still at $13 when you sell your tax split is $1.50 ordinary income and $3 LTCG, because your new cost basis is $10.

Keep in mind when the stock declines over the purchase period this advantage completely evaporates.

Another thing to note on the timing. The clock starts ticking on LTCG when the stock is purchased into your account. But for the tax benefit is it from the start of the plan, when they start taking money out of your paycheck. Where I work the plan is annual, with purchases every 6 months. So on the first purchase of the period 6 months have already elapsed and I need to wait 18 months to get the tax benefit. On the second purchase 12 months have passed so I only need to wait 12 more months, which aligns with the LTCG period.

axxl3• 2 years ago

Nearly everything in this article is too simple to be correct, or depends on details of your specific plan that is not generalizable. Two examples: ESPP is considered long term capital gains after the later date of 1 year after purchase OR 2 years from the date of the price you paid. Also typically the look back is the lower of the starting and ending price for a period, not lowest in the period.

The only way to provide simple advice on RSUs and ESPP is, as others have said:

Sell them immediately and diversify.

For everything else do research and don't trust a random article, coworker, or HN comment (mine included)

4ad2• 2 years ago

Sell them immediately and diversify.

I can diversity even quicker with the extra cash I'd get instead RSUs and ESPPs.

MapleWalnut• 2 years ago

That’s true, but with ESPPs, you get a discount on the stock price, effectively guaranteeing a decent return that would be hard to beat.

gorjusborg3• 2 years ago

Unlike ESPPs (which you essentially buy with part of your paycheck) RSUs are pay with strings, so you usually don't have a choice between money and RSU.

You can think of RSUs as 'golden handcuffs' compensation. The point is to reward you, while discouraging you from ever leaving because there will always be some that are not vested.

axxl3• 2 years ago

Both are ways for the company to have your income be invested in the overall success of the company, which makes sense from an alignment perspective. ESPP usually has a material discount benefit, which typically is a "can't lose" scenario if you sell immediately (with some caveats of course as immediately isn't technically possible).

PopAlongKid8• 2 years ago

RSUs and ESPP are actually two very different things. By default, anything of value your employer gives you is considered compensation, taxed at ordinary rates. RSUs fall into this category.

But there is something called "statutory stock options", of which there are two types: ISOs and ESPP. The main benefit (under statute) is that if you hold on long enough, instead of ordinary compensation income, the gains can be treated as long term capital gains (LTCG) and taxed at a significantly lower rate.

axxl3• 2 years ago

To be fair I never claimed they were the same, just that my "simple" advice applies equally to both. I only called out 2 examples of the many ways this article is lacking in nuance on the details.

fatnoah2• 2 years ago

This article misses the main "gotcha" for me with RSUs. A vesting event counts as a purchase for purposes of determining whether it was a "wash sale" (selling and then re-buying) or not. Not knowing this added insult to the injury of selling previously vested shares at a loss, since a big chunk of the potential loss deduction wasn't allowed.

PopAlongKid8• 2 years ago

The loss wasn't allowed in the current year, but it was added to basis of the remaining stock, so eventually the lower tax still happens.

fatnoah2• 2 years ago

Good point, though the result of my clever maneuvering is having to deal with a loss carry forward for a long time due to the amount involved.

I guess the bright side is that when I finally have some capital gains to report when I retire, I'll have something to offset them as the amount is large enough that the capital loss deduction allowed for ordinary income won't even be close to depleting it when I hit retirement age.

ojbyrne2• 2 years ago

TL;DR always sell at vest. Take the tax hit, diversify. As long as you’re still working at the company you have plenty of eggs (unvested RSUs and future ESPPs) in that basket.

nlawalker2• 2 years ago

The simplest and most comprehensive advice I've seen about ESPP and RSUs is simply to not be influenced by the fact that the value is delivered to you as shares. It's 2024, it's all fungible, selling shares requires a couple clicks and zero fees. Imagine that the value of your ESPP and RSUs was all delivered to you as cash - would you take that cash and invest in your company's stock? If yes, then sure, keep the shares; if not, then make the couple of clicks to sell it and do something else with it.

What I wish I knew about sooner was the mega backdoor Roth. https://www.bogleheads.org/wiki/Mega-backdoor_Roth

EDIT: Also interesting, I just heard the other day about https://heybenny.com/ - effectively payday loans so you can max out your ESPP if you would otherwise have trouble doing so due to cashflow.

stouset13• 2 years ago

What I wish I knew about sooner was the mega backdoor Roth.

Absolutely. If your plan supports this, it’s a no-brainer way to put away an aggregate of $76,000 in tax-advantaged savings between a Roth, 401(k), and Roth 401(k). Depending on employer matching, you’re putting around $50,000 of that into post-tax buckets, so it will never see taxes again.

That said, it is bonkers to me that we have a system where most Americans’ only retirement savings option is $7,000 into some form of IRA. Anything availability of a 401(k) or mega-backdoor is completely up to your employer’s benefits package. It doesn’t matter how much you make, the availability of these tax-advantaged retirement options is entirely gated on your choice of employer.

In a just world we would eliminate the pointless and easily bypassed MAGI limits for IRAs and establish a shared tax-advantaged savings limit regardless of account type.

PopAlongKid8• 2 years ago

most Americans’ only retirement savings option

Not true. Anyone can buy stocks and bonds, and for most part defer paying taxes on unrealized gains for decades. And when they do need to realize gains (i.e. sell), the tax rate will be the lower LTCG rate. And anything left over at death passes to heirs free of income tax (basis adjustment to FMV).

a no-brainer way to put away an aggregate of $76,000 in tax-advantaged

You keep on using the term "tax advantaged" without defining what that means.

For Trad. IRA/401k compared to Roth, it is a simple matter of your future tax rate compared to today. If those two rates are the same, there is no difference[0]; if future tax rate is higher, go Roth, if future tax rate is lower, go Trad IRA/401k

pointless and easily bypassed MAGI limits for IRA

Please explain "easily bypassed". If you meant the "backdoor" aspect, that is only easily by-passed if one does not have any pre-tax money in Trad. IRA. And if you mean Roth 401k, those are even much less common than the ordinary 401k.

In a just world we would eliminate ....

Just as we would allow health insurance to be paid with pre-tax money, whether employed or not.

[0] for simplicity-- using round numbers and assume 5% simple annual investment return (no compounding), and 20% tax rate

Pre-tax contribution: $10K + (20yrs x 0.05 x $10K) = $20K

withdrawal at 20% tax = $16K net

Post-tax (Roth) contribution: ($10K - $2K tax) + (20yrs x 0.05 x $8K) = $16K

withdrawal at 0% tax = $16K net

What I wish I knew about ESPP and RSUs sooner

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