Your Six-Point Checklist to Navigating Corporate Retirement Benefits

1. Understand the various savings options available to you.

It’s helpful to understand the differences and benefits of these options, so you can take full advantage of these opportunities, regardless of your age.

As a corporate professional, your company may offer the following savings options:

• A 401(k) plan is a common corporate retirement savings option and falls in the "defined contribution" category. It is managed by you up to certain income limits, but an employer may make contributions, too. Growth is based on how well the investments within your portfolio perform.
• A Deferred Compensation Plan, also known as an Excess Benefit Plan, is supplemental to a 401(k) and available specifically to high earners.
• A qualified pension plan is a defined benefit plan managed by the employer. While not as common anymore, find out if your company contributes funds to one. Payout is calculated based on specific formulas, which incorporate salary, tenure and other factors.
• A non-qualified pension is similar to a Deferred Compensation Plan and provides additional savings opportunities for high-income earners.
• Stock options are available from companies such as Shell, Chevron, and BP. Many organizations offer employees the opportunity to purchase company stock at a discount. Make sure you know your options and take advantage of opportunities to maximize your investment’s growth over the years.
• If you do purchase a significant amount of stock options, make sure you know how to use a Net Unrealized Appreciation (NUA) strategy when you are ready to sell your company stock and earn even more.

2. Save more now and later by maxing out your 401(k) contributions.

Ensure you’re maxing out pre- and after-tax contributions in your 401(k).

• If you’re under 50, you can contribute up to $19,500 (2021) between pre-tax and Roth contributions.
• If you’re over 50, you’re allowed to contribute an additional catch-up amount of $6,500, for a total contribution option of $26,000 (2021).
• Consider a potential backdoor Roth strategy if you’re a high-income earner and cannot contribute to a Roth directly.

Based on your tenure, most companies make significant contributions — between 2.5 and 10 percent — on your behalf. Over time these add up, so make sure you get the full match every year.

It is also important to note that maxing out your 401(k) does not only impact you in retirement but could help lower your tax bill now. By reducing your taxable income in the years you contribute to your 401(k) plan, you may experience significant tax savings, especially when the income reduction can bump you to a lower tax bracket.

3. Choose your contributions wisely. 

You have the option of making pre-tax, after-tax or Roth contributions to your 401(k). Each of these contributions has its benefits, and the best choice for you will depend on your personal goals and financial plans. Learn more about those options, as well as these other savings strategies:

• Annually convert after-tax money from your fund to a Roth IRA for tax-free contributions and growth.
• Coordinate annual backdoor Roth contributions in addition to your workplace savings. This can add up to $7,000 to your Roth IRA every year, depending on your age.
• Max out your 401(k) contributions before earning $290,000 of income when income limits prohibit both you and your company from making additional contributions (2020).
• Purchase additional shares at discounted pricing if your company offers an employee stock purchase plan.

4. Use tax planning to time your financial decisions.

It’s imperative to time major financial decisions in accordance with a strategic tax plan. There are many benefits, income sources and other retirement-related considerations that can either save or cost you substantial amounts based on their timing.

For many corporate professionals, these include:

• The 401(k) plan
• Deferred Compensation Plans and non-qualified retirement benefit packages
• Retirement income benefits through pensions plans
• The strategy for acquiring and divesting company stock, and the importance of diversification
• Comprehensive tax strategy
• Bonus and vacation payout
• NUA strategy, which has saved people tens to hundreds of thousands of dollars
• Starting a consulting practice

5. Your retirement date can save or cost you thousands.

6. Start saving as early as possible.

It’s important to start saving in plans like a 401(k) and employee stock plan as early as possible, so you can use time and market returns to your advantage. Consider the value of compounded growth of these accounts and understand that even just a few years can significantly add to the bottom line of your total savings. It’s never too early to begin putting together your retirement strategy, or simply preparing for the future by securing the most tax advantageous savings options available to you.