Author Topic: Can someone give me a quick math check (401k vs ESP)?  (Read 1271 times)

JLee

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Can someone give me a quick math check (401k vs ESP)?
« on: April 15, 2015, 03:50:01 PM »
Basic info-
$58,460/yr base salary
$13,200/yr rental income
$71,660/yr (2% raise took effect this month, so I earned slightly less for the first three months of the year)

In January, I max'd my employee stock plan at work (15% of income), which gives me a 33% match that's deferred by a year. I was doing this because a 33% gauranteed return is solid and I figured I would ramp up 401k further as my income allows.

However, I just realized that I will be taxed at 25% federal (plus state/etc) on my 33% stock match (currently $730.75/mo in stock, which will return $241/mo 12 months from purchase), bringing me to an effective 24.75% (or less) match (after 25% federal tax).

If I max my 401k at $18k ($1500/mo pre-tax), I will lower my AGI by approximately $12,730 (I was contributing 6% but bumped to 10% as of April 15, so it would actually be slightly more than that), reducing my federal tax burden by $3182.  Meanwhile, my stock match of $241/mo is $2892/yr ($2169 post-tax).

Adding to this, when I leave this company I will forfeit the last 12 months of match (because it is deferred by 12 months). I might be here for another year or two, but it is highly unlikely that I will be here any longer than that (if I even make it through the rest of this year, as I have the occasional recruiter courting me for much more than I currently earn).  So, by going the stock route, I will lose about $3k whenever I quit.

The tax credit is looking to be the better option. Did I miss something?

MDM

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Re: Can someone give me a quick math check (401k vs ESP)?
« Reply #1 on: April 15, 2015, 03:55:39 PM »
Do you buy the stock at a discount, in addition to the 33% match?

You might manipulate the case study sticky spreadsheet to include your scenarios - it could help with the tax calculations.

JLee

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Re: Can someone give me a quick math check (401k vs ESP)?
« Reply #2 on: April 15, 2015, 04:00:31 PM »
Do you buy the stock at a discount, in addition to the 33% match?

You might manipulate the case study sticky spreadsheet to include your scenarios - it could help with the tax calculations.

No, stock is purchased at normal pricing. I'll check out the spreadsheet - thanks!