How to allocate company bonus

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Topic Author
bbwolf
Posts: 8
Joined: Sun Jun 24, 2018 8:20 am

How to allocate company bonus

Post by bbwolf » Tue Jan 29, 2019 2:11 pm

I'm expecting a company bonus next month but i am expected to make my allocation elections soon. I'm expecting something between 10-20k and wanted to know if there were any tax advantages to be had depending on my election.

I get 50% of these in restricted stock which vests after 1 year. The other 50% can be received in cash, company stock at a 5% discount or my 401k.

I max out my 401k contributions very year and will max out my IRA this year as well. I usually have an HSA but i only have an FSA this year due to a plan change. Is there any advantage in taking the electable portion in 401k funds? My thinking is that it wont make a difference since i planned on maxing it out anyway. Could i elect to receive it in cash and then contribute the after-tax dollars to my HSA even if i don't have an HSA eligible health insurance plan?

Just to give an idea, i currently have a 3 fund portfolio that i contribute to twice a month so i doubt this would have any effect on it.

bloom2708
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Location: Fargo, ND

Re: How to allocate company bonus

Post by bloom2708 » Tue Jan 29, 2019 2:18 pm

I would do cash or if you do company stock, sell it the first day you can.

With the cash, fill up Roth IRAs, HSA and/or pay off debt and/or invest in taxable brokerage. No shortage of ways to save, invest, spend a bonus.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

BanquetBeer
Posts: 361
Joined: Thu Jul 13, 2017 5:57 pm

Re: How to allocate company bonus

Post by BanquetBeer » Tue Jan 29, 2019 2:21 pm

See if you can sell stock right away. Maybe worth the $500-1000, maybe not.

Unclear if there are limitations on the 401k based on gov limits.

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dunkmachine
Posts: 41
Joined: Sat Jan 06, 2018 12:48 pm

Re: How to allocate company bonus

Post by dunkmachine » Tue Jan 29, 2019 2:26 pm

Is after-tax 401(k) an option? This can be rolled into a Roth IRA in retirement or if your company plan allows for in-service rollovers.

What about purchasing the company stock at 5% discount, and then selling the stock as soon as possible? That'll give you a guaranteed 5% return, less taxes.

carmonkie
Posts: 151
Joined: Fri Jun 29, 2018 4:31 pm

Re: How to allocate company bonus

Post by carmonkie » Tue Jan 29, 2019 3:27 pm

Since you are maxing out your tax-advantage accounts, it won't make a difference. It will all balance out through the rest of the year.

On the 401(k) I think you meant that they will deposit the percentage of your current % election? If so, you can lower the percentage to get the most of the bonus. Then after that you can reset your election, to get the match for the rest of the year. If you keep your current election, you will tackle a big chunk of the 19,000 allowed for 2019, then your contributions can go down from say 15% to 10%. Your take home will adjust accordingly after that.

It looks like in your case, the discounted 5% stock might be a good deal. Sell right-away and then use the proceeds to pay taxes, fund Roth IRA, pay debt or some play money, after all you worked hard for it.

Congrats on your bonus
CM

Topic Author
bbwolf
Posts: 8
Joined: Sun Jun 24, 2018 8:20 am

Re: How to allocate company bonus

Post by bbwolf » Thu Jan 31, 2019 4:30 pm

Seems like taking the 5% company stock discount is the best way to go. I'll research how quickly i can sell the stocks after they are purchased.

@CM...if i select the 401k deduction, they would dump all the electable portion in my 401k regardless of my current contribution percentages. This is what i did last year and for the last 3 months of the year, my take home pay went up.

sailaway
Posts: 769
Joined: Fri May 12, 2017 1:11 pm

Re: How to allocate company bonus

Post by sailaway » Thu Jan 31, 2019 4:35 pm

You cannot contribute to your HSA if your plan is not eligible.

For the 401k contribution, how does your company match work?

lakpr
Posts: 3079
Joined: Fri Mar 18, 2011 9:59 am

Re: How to allocate company bonus

Post by lakpr » Thu Jan 31, 2019 4:50 pm

Keep in mind that companies usually cut a flat 25% or 30% from pay checks that include the bonus towards federal taxes. If a large percentage of this money is instead directed into the 401(k) plan, that 30% cut would only be applied on the remainder.

Therefore what I do usually is to up the deduction percentage from my pay check that includes the bonus to 75% (max allowed at my employer) in the 10 to 15 days prior to its distribution, and knock back that percentage to 6% that's required to capture the full employer match.

Yes it evens out at the end even if you don't do these payroll gymnastics, but the advantage is that a larger amount starts working for me in the market earlier than it would otherwise be.

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