I’m excited to share my second newsletter which is a Compensation & Benefits Strategy Guide for Professionals.
If you find this guide valuable and would like to discuss your own finances to see how I can help, please reach out to schedule a time to speak!
Intro
You give your all to your work – shouldn’t you pursue all of the compensation & benefits available to you? If you’re reading this, there may be some aspects of your compensation or benefits that you’re not sure if you’re fully capturing.
This guide looks across the compensation & benefits buckets that may be available to you to provide selected strategies for each:
Salary
- Regularly benchmark your salary, bonus & equity compensation
- Maintain a personal budget to maximize savings rate
Healthcare
- Enroll and prioritize your health as a cornerstone to maximizing benefits
- Explore plans that permit a Health Savings Account (H.S.A.)
Retirement
- Target to fully capture any company match and maximize 401k contributions when possible
- Explore if your plan permits Mega Back Door Roth conversions
- Understand Net Unrealized Appreciation (NUA) if you hold your company’s stock in your 401k
Equity Awards
- Know the timing of and have a plan for taxes due for equity awards such as Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs)
Other Benefits
- There may be additional benefits that you aren’t utilizing or may not even know about that could add meaningful value
My goal is for you to pursue all the aspects of compensation & benefits available to you so that nothing wanted is left on the table. Some of these strategies are material but many are incremental. However, over a career, I’ve seen financial success come through a series of small victories rather than a single event. My hope is for you to have a plan for each form of compensation & benefits available to you and to build meaningful wealth over your career.
Salary
My hope is to encourage you to benchmark and advocate for your salary and see that a personal budget can help maximize savings.
Summary
- Regularly benchmark your salary, bonus & equity compensation
- Maintain a personal budget to maximize savings rate
Benchmarking
There’s no easy button to maximizing your salary, bonus or equity award. In my own experience, whether you’re an executive or in your first role, the journey can be art and science. I have to admit that I didn’t benchmark well enough early in my career. It wasn’t until I observed others do it successfully that I understood the potential benefit.
I believe the science part is to regularly benchmark your compensation to the market. Do you know what your organization (or competitors) is paying others (including newer hires) for your role (or similar roles)? It’s not always the easiest information to get – talking to peers, looking at job postings, taking calls from recruiters or leveraging external offers are a few channels – but making an effort to stay on top of this may serve you well over your career when conversations of compensation and advancement come up.
The art of it is when to utilize the information. Asking for a raise every year might not land well. However, knowing the value of what you bring to your organization with supporting data points on how you impact revenue, efficiency or retention is likely to be paramount when conversations on compensation arise at key points – certainly during job offer negotiations but, once you’re in the role, at time such as check-ins, annual reviews, promotions or when being recognized for an achievement.
Budget – don’t forget this part!
The other part of this is how you use your salary. Though there may be times where money is tight and you aren’t able to maximize savings, one goal to consider is to craft a personal budget that allows you to maximize your savings rate – with an annual savings rate of 10-15% of gross income a target for consideration during accumulation years.
Healthcare
With enrolling in healthcare a cornerstone to maximizing your benefits, my hope is to additionally highlight that a Health Savings Account could be a powerful vehicle to help prepare for future healthcare needs.
Summary
- Enroll and prioritize your health
- Explore plans that permit a Health Savings Account (H.S.A.)
Enroll!
First, ensure you are enrolled and taking advantage of your company’s healthcare plan to prioritize your personal health!
Health Savings Account – H.S.A.
In considering the financial impact of which plan to select, generally, higher monthly premiums have a tradeoff of lower deductibles and, conversely, lower monthly premiums bring higher deductibles. As you review your budget and expected medical needs for the year ahead, one financial aspect that I want to highlight for consideration in this decision is explore if your company has a High Deductible Health Plan (HDHP) healthcare plan that permits a Health Savings Account (H.S.A.).
This is because H.S.A.’s are one of the most attractive savings vehicles due to their triple tax advantage:
- Contributions are tax deductible;
- Earnings grow tax-free; and
- Distributions used for qualified medical expenses are tax-free and penalty-free.
For many, significant after-tax savings may be needed to cover health care expenses later in retirement. So, a H.S.A. could be a powerful vehicle to prepare for that future need. Importantly, investing your contributions and letting them compound over time – rather than utilizing the H.S.A. like a checking account – gives you the potential to harness more of an H.S.A.’s triple tax advantage.
Retirement
My hope is to encourage you to fully capture any company match and save as much as possible as well as educate on the potential benefit of a Mega Backdoor Roth and tax benefits of understanding Net Unrealized Appreciation (NUA).
Summary
- Target to fully capture any company match and maximize 401k contributions when possible
- Explore if your plan permits Mega Back Door Roth conversions
- Understand Net Unrealized Appreciation (NUA) if you hold your company’s stock in your 401k
Fully Capture Matching & Try to Maximize Contributions
If your company provides a 401k match, arguably, the best use of your investment dollars is to contribute enough in order to maximize the match to capture this ”free” money.
Taking it a step further and building off a budget focused on maximizing your savings rate, are you able to put aside more in your 401k? Can you contribute to the salary deferral limit ($23,500 this year for those under 50)? Contributing as much as you can to your 401k each year can play a part of one’s success through a series of small victories idea. It’s in a lot of 401ks that I’ve seen wealth built through the consistent investment over time paired with the power of compounding.
Mega Backdoor Roth
Another strategy to explore is whether your work retirement plan allows for a mega backdoor Roth conversion. If it does, you could contribute up to $70,000 (for those under 50) to a Roth this year.
In 2025, if your work retirement plan features a Roth 401k, as noted, you could contribute up to $23,500 to a Roth via salary deferrals (for those under 50). But, if the plan also allows for a Mega Backdoor Roth conversion, you could potentially contribute up to $70,000 in total to a Roth (for those under 50).
- This $70k is this year’s annual contribution limit which totals across all contributions – pre-tax, Roth, after-tax, employer, etc.
- The Mega Backdoor Roth is a non-deductible (or after tax) contribution made to the traditional side of your 401k or 403b plan which is then converted to the Roth side of your company plan or a Roth IRA. An after-tax 401k contribution is different from a contribution to a Roth 401k and different from a pre-tax contribution to your 401k (which is usually the default).
- The plan must allow after-tax contributions and periodic in-service distributions and you must have room left for the contributions. Also, after-tax contributions must pass Average Contribution Percentage (ACP) testing.
- This is a complex strategy so be sure to consult with a tax advisor before undertaking.
There is no immediate tax savings given the contributions are after tax – and you may not be able to reach the full $70k limit. But, for what amount you do contribute, if the money is converted to a Roth then future growth and qualified withdrawals are tax free and, if done across multiple years, it has the potential to play a significant role in your retirement savings plan.
Net Unrealized Appreciation – NUA
Finally, if you hold your company’s stock in your 401k and it is on track to be highly appreciated – then you should know about Net Unrealized Appreciation or NUA. If you don’t know about NUA and rollover your 401k along with those company shares to an IRA, all of those funds will be taxed at ordinary income rates. However, if you follow the steps to take advantage of NUA then the appreciation in your company’s stock can come out at long term capital gains rates which has the potential to provide significant savings.
The process can start following one of these three triggering events:
- Reaching age 59 1/2;
- Separation from service (e.g. retirement); or
- Death (for those doing estate planning because the benefit can pass to beneficiaries).
The steps to take advantage of NUA are technical so be sure to consult with a tax advisor before undertaking – but now that you know about it you can ask the right questions.
Equity Awards
My goal is for you to know the timing of and have a plan for taxes due for equity awards.
Summary
- Plan for the timing of taxes due for equity awards such as ISOs, NQSOs, RSAs or RSUs
Benchmarking Remains Important
Recall one of our first strategies is to make sure you are benchmarking your compensation to the marketplace to help ensure you aren’t leaving anything on the table – and this certainly applies to equity awards.
Know the Timing of Taxes Due on Your Equity Awards
Once your equity is awarded, strategy shifts to planning for the timing of (and ideally, where possible, minimizing) taxes due on those awards. So, tracking your vesting schedule(s), expiration date(s) and taxable event(s) when applicable for vesting, exercises or sales is vital. Our first newsletter went in depth on strategies for equity awards including the timing of when taxes are due for Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs). Understanding this timing can aid tax planning. Please check out our first newsletter on “5 Strategies for Stock Options, Taxes, Property & Giving for 2025” for the details.
Other Selected Strategies
A few other selected strategies for equity awards include:
- Understand if your equity awards vest upon a certain milestone such as retirement after turning age 55.
- Understand if you have built a concentrated stock position in your company’s shares. This might mean you have more than 10% of your net worth in your company’s stock. Here, planning considerations for liquidity and diversification increase with potential strategies to explore including selling incrementally, hedging, direct indexing, exchange funds and charitable giving.
Other Benefits
My hope is to highlight there may be many additional benefits that you aren’t utilizing or you may not even know about that could bring meaningful value to you.
Vacation Days, Perks and More
Are there other benefits available to you? In my mind, vacation days is perhaps one of the big ones in the “other” bucket – but my goal in this section is to highlight that there may be many additional benefits that you aren’t utilizing. There also may even some that aren’t widely advertised that you may not know about! So, be sure to ask around and seek out the other benefits that may be available to you.
Here is a non-comprehensive list of potential benefits to explore if your company offers them:
- Discounts when buying company stock (e.g., ESPP – Employee Stock Purchase Plan)
- Financial planning and/or legal support
- Flex spending accounts
- Free food or drinks in the office
- Gym and/or wellness reimbursement
- Home office reimbursement and/or ergonomic workspace support
- Lateral mobility or internal promotion potential
- Leaving early on Friday afternoons
- Life insurance and/or long-term disability insurance
- New hire referral bonus
- Parental leave, lactation stations and/or childcare support
- Parking, transit and/or TSA Precheck support
- Professional development support for education, training, conferences, certifications, etc.
- Sabbatical
- Volunteer support and/or donations to charities
- Workplace affinity groups
- Work environment and culture that’s positive and/or purposeful
- And, last but certainly not least, using all or as much of your vacation time to recharge your batteries!
💡 What’s a compensation or benefits strategy that’s been valuable to you in your career?
Important Disclosure: Olivehurst Advisors LLC (OA) is a Registered Investment Adviser in the state of California. Advisory services are only offered to clients or prospective clients where OA and its representatives are properly registered or exempt from registration. Neil Portus is an investment adviser representative of OA. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed and not to be considered financial, legal, accounting or tax advice. “Likes” should not be considered a positive reflection of the investment advisory services offered by OA and any comments should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the investments mentioned. A professional adviser should be consulted before implementing any of the strategies discussed. Investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies can result in profit or loss.