Key Planning Focuses for Tech Workers

Please visit the dedicated page covering this: Stock Comp 80/20 Rule

Listening to advice from friends and co-workers regarding what to do. Your situation is unique to you. Advice from friends, co-workers, management is well intended, but lacks your specific context, which can make it bad advice for your specific situation and goals.

Doing nothing because you didn't/don't know what to do. Not taking any action with your stock comp is a valid decision path, but it needs to be intentional. Doing nothing because you didn't know what to do can create significant risk and/or adverse tax consequences.

Ignoring tax consequences when making stock comp decisions (cross-listed here + in tax). Stock-comp decisioning is typically an investment/risk decision first, but nearly every decision or action also has a tax impact. Ignoring or failing to understand the tax dynamics of your decision can result in surprise tax bills, incorrect tax filings, and/or a material decrease in your after-tax wealth.

Not selling 100% of your RSUs when they vest. While not selling vested RSUs can make sense in rare cases, the vast majority of the time selling 100% is the optimal choice. For more information: There is No Tax Benefit to Holding RSUs After Vesting

Have you considered/defined the type of retirement you want? Retirement isn't what it use to be. Some individuals want to never stop working (they like the intellectual stimulation work provides), others want a traditional mid-60s retirement, and others still would like to retire early. And in retirement, some envision increased expenses for significant travel, while others desire a low-key lifestyle (and with it likely a decline in spending). There is no wrong answer, but the type of retirement you envision drives a lot of the decision making and planning.

Are you on track for retirement? Do your assets, income, spending rate, planned savings rate, and year until retirement provide a high level of confidence that you'll be able to retire when you want to and have the type of retirement you're envisioning?

Are you saving for retirement in the optimal way(s)? There are a plethora of retirement savings strategies and accounts types (401k; IRA; Roth; Pensions; 403b; SEP; SIMPLE; etc.). Knowing what account type(s) are available to you, if they are tax-advantaged, and will provide you with the best long-term outcome can be confusing at times.

Not contributing to, or meeting, the max "match" from a 401k plan (when you have the funds to do so). An employer-match for a 401k account frequently offers the best return on investment there is. If you have the funds to save/contribute, understanding your employers match rules and ensuring your contributions are setup to fully capture the max provides a material boost.

Borrowing from, or cashing out year, your retirement accounts. This isn't always a terrible idea, but in our experience it tends to be 80-90% of the time. If you're borrowing from your retirement account or cashing it out early, it's usually a strong signal that you need to better plan your finances.

Forgetting about IRAs or 401ks you have. A 401k from 3 employers ago, an IRA you setup when you were 15, a Roth IRA your parents setup for you and you both forgot about --> we've seen/heard it all. This is your money; and its important to know where you have it.

Not considering a Backdoor Roth IRA strategy (when it would be a worthwhile). The ability to contribute to a Roth IRA is subject to an income cap,, which many tech workers exceed. That said, a backdoor Roth IRA strategy accomplishes nearly the same outcome, but without any income cap. It's not always a good idea (especially if you have traditional IRA funds), but in some cases it's a great way to save extra money for retirement in a tax-optimized account.

Do you desire to pay for your child(ren)'s education? If so, how much (half, all)? Do you anticipate public in-state, out-of-state, or private college? What about graduate school?

Do you plan/desire for your child(ren) to attend public or private K-12 school? If so, how will it cost, and how do we budget for it?

How can you tax-optimize your education savings? 529 plans are the most popular tool, but other saving strategies also exist. Certain states also offer a tax deduction for 529 contributions (but the plan has to be a state plan).

Not saving for children's college. Like most types of savings, the healthiest way to meet a goal is bit by bit over time. If you desire to pay for some/all of your child(ren)s college, starting early is usually the best choice.

Not considering a 529 plan for private K-12 (if your state allows it). A recent tax law change allows the use of 529 plan funds (up to $10,000 per year) to pay for private K-12 schooling. But some states also don't comply (which can be a bit challenging to navigate).

Not being aware of/considering "superfunding" a 529 plan (if you have the funds and desire to). Superfunding allows you to put up to five years of contributions into the account all at once without triggering gift tax. It effectively "pulls forward" the next five years contributions (something to be aware of). But superfunding can get more dollars into an account earlier, increasing the tax benefits (if you have the funds today).