Cash Flow Issues
Has your income changed substantially?
If so, consider the following:
- The change in income may impact your ability to reach your goals or may result in entirely new goals.
- You may decide to pay down your debts faster.
Will this promotion or raise change your budget or ability to save?
If so, consider the following:
- A new income and expense plan may be needed.
- You may be able to increase the amount you contribute to tax-advantaged accounts such as HSAs, 401(k)s, and IRAs.
Retirement Plans & Equity Compensation
Are there significant changes in the amount of employer provided benefits (such as stock options, RSUs or Supplemental Retirement Plan)?
If so, consider the following:
- Create a strategy for any equity compensation, planning for vesting, exercise, and tax consequences.
- Review the amount of stock-based compensation you will receive and if your overall financial situation may be overly reliant on one company.
Are there new benefits you may be eligible to participate in, such as non-qualified deferred compensation plans?
If so, read the plan documents to understand your options and the potential benefits of participating in the plan.
Did this promotion include equity ownership?
If so, consider the following:
- Understand how the buy-in process is handled and the amount/timing of the payments you will need to make.
- Understand the options to pay for the equity, including self-financing, bank financing, or company-provided options.
Do you have a retirement plan with your employer?
If so, consider the following:
- Review the amount you are able to contribute.
- If you contribute the maximum salary deferral amount of $24,500 (plus any catch-up contributions that may apply) and want to contribute more, consider if a Mega Backdoor Roth contribution is applicable. Reference “Can I Make A Mega Backdoor Roth Contribution?” flowchart.
Have you or your spouse been contributing to a Roth IRA?
If so, ensure that you are still eligible to make a contribution to the Roth IRA. Reference “Can I Contribute To My Roth IRA?” flowchart.
Have you or your spouse been contributing to a traditional IRA?
If so, confirm whether you are eligible to deduct your contributions (in whole, in part, or not at all). Reference “Can I Make A Deductible IRA Contribution?” flowchart.
Did you receive Non-Qualified Stock Options or restricted stock?
If so, consider the benefits and trade-offs of an IRC §83(b) election (if permitted), which will allow you to pay ordinary income tax on the NQSOs or restricted stock now, rather than when they vest.
Tax Planning Issues
Do you expect there to be any changes to your taxable income (due to a change in compensation)?
If so, consider the following:
- Depending on the change in your taxable income, you may need to adjust your tax withholdings and/or make quarterly estimated tax payments.
- An increase in your income may impact your eligibility for certain deductions and/or credits.
- You may be eligible for a below-the-line deduction (subject to limitations) if part of your income comes from tips and/or overtime.
Do you need help deciding on the amount of withholding you should elect?
If so, consider electing the part-year withholding method to adjust your withholding.
Do you expect your life insurance needs to change due to increased income?
If so, consider reviewing your current coverage, including employer-provided life insurance, to determine if you need to adjust coverage amounts.
Do you expect your income to increase substantially?
If so, consider reviewing your disability insurance policies. Depending on your income and employer benefits, a private disability policy may be needed, if you don’t have a policy currently.
Do you have an individual disability insurance policy?
If so, consider updating it to reflect your new income.
Other Issues
Do you expect your income to increase, and do you have credit cards?
If so, consider calling your credit card company to let them know of your increased income. They may increase your credit limit, which could help your credit utilization ratio.
