Potential Financial Steps for Tech Professionals in February 2025
By Kevin Estes
Most wonderful time of the year
Forget December. The most wonderful time of the year for many tech professionals is February!
That’s when they may:
get their raise,
receive their annual bonus, and
vest Restricted Stock Units (RSUs).
Potential steps for tech employees this month
Financial steps could include:
update saving for raise and bonus,
schedule tax prep meeting,
gather tax forms and create checklist,
accept Restricted Stock Unit (RSU) grant, and
review / rebalance investment portfolio.
1. Update saving for raise and bonus
As an example, the T-Mobile annual raise and bonus are typically communicated around Valentine’s Day. I always loved getting the good news and celebrating with my wife!
Raise
The annual merit increase is often a whole percentage.
Keeping Up With Inflation?
It’s important to consider whether a raise beats inflation.
The 12-month percentage change in the Consumer Price Index (CPI) ending December 2024 was 2.9%.
If someone’s raise was below 3%, it may be because they:
recently received a raise,
accepted a promotion, or
are at the top of their pay band.
It might also be a sign of trouble in their current position.
Nonetheless, raises help employees automatically save more.
Example:
Let’s say Bob was earning $100,000 and got a 4% raise. He now earns a $104,000 salary. Congratulations!
Bob contributes 5% of his gross income to his pre-tax 401(k) to get the full company match.
Without any other changes, his pre-tax 401(k) contributions would rise $360 for the year.
Bob contributes $200 more:
from $5,000 (5% of $100,000)
to $5,200 (5% of $104,000).
The company matches $160 more:
from $4,000 (4% of $100,000)
to $4,160 (4% of $104,000).
Gain Without Pain
Raises are a great time to save more without feeling it.
Let’s say Bob bumped his pre-tax 401(k) contribution rate from 5% to 7%.
His 401(k) contribution rises $2,440 for the year!
Bob contributes $2,280 more:
from $5,000 (5% of $100,000)
to $7,280 (7% of $104,000)
…plus the company matches $160 more.
The best thing is that Bob’s take-home pay might still rise! It could grow from $2,740 to $2,790 per paycheck. That’s nearly $1,300 more a year!
Getting more while saving more is a win!
This trick comes courtesy of my grandmother. She consistently saved half of her and my grandfather’s raises.
Bonus
Tech bonuses are no joke.
At T-Mobile, salaried employees are on the Short-Term Incentive Plan (STIP). The annual bonus has both an individual and company component. The split varies by pay level.
Individual Bonus
The individual piece is based on the employee’s performance according to their leaders:
above 100% is good;
below it… not so much.
Individual payouts were about 100% for years. However, variation was added to reward extra effort.
Company Bonus
The company piece is tied to T-Mobile’s overall performance. It’s based on a set of targets.
In good years, it’s been well over 100%.
Bonus Considerations
My wife and I never took my annual bonus for granted. We knew the company might pay a reduced bonus - or no bonus at all.
Bonus paychecks are mixed:
good - they provide significant income;
bad - they can be heavily taxed.
Bonus Retirement Saving Options
A company may offer:
pre-tax 401(k),
Roth 401(k), and
after-tax 401(k).
There’s also a spousal IRA option outside of the employer.
Pre-Tax 401(k)
Saving some of the bonus to a pre-tax 401(k) has three primary benefits:
reduces taxable income (and likely income tax),
gives investments more time to grow, and
reduces how much needs to be taken out of the biweekly paychecks to reach the contribution limit.
The 2025 employee 401(k) contribution limits are:
$23,500 for those less than 50 years old,
$31,000 for those aged 50-59 as well as 64+, and
$34,750 for those aged 60-63.
New for 2025 is a higher catch-up limit for workers aged 60-63. It’s $11,250 instead of $7,500 generally for those 50 years old and wiser.
Roth 401(k)
Another option is the Roth 401(k) - sometimes shortened to Roth(k).
The Roth benefit is that someone pays income taxes now and - if certain criteria are met - never pays income tax on the funds again!
The Roth option might appeal to someone if they:
don’t need the money for living expenses or debt payments,
anticipate their income will grow significantly in the future,
expect to continue to work until full retirement age, and/or
might move to a state with a higher income tax rate.
Here’s a quick comparison of the Roth and pre-tax 401(k) features:
After-Tax
Many tech companies added the after-tax option more recently.
This plan is especially helpful for higher income employees looking to save on top of pre-tax contributions like their:
401(k) and
Health Savings Account (HSA).
The 2025 contribution limits are:
$23,500 for employee pre-tax/Roth 401(k) contributions and
$70,000 in total defined contributions.
The company match also counts toward the $70,000 limit.
Example:
Jen is a 45 year-old who earns a $200,000 salary and a $50,000 annual bonus. Congratulations!
Jen maxes her pre-tax 401(k) contributions at $23,500. Her employer also matches $10,000 (4% of $250,000).
That leaves $36,500 for her to contribute to the after-tax account:
$70,000 total defined contributions limit
less the $23,500 employee contribution
less the $10,000 company match.
Some plans allow money to move out of an after-tax account while the employee is still employed. That’s called an in-service distribution. Jen may be able to sweep funds directly into a Roth 401(k) or Roth IRA.
That’s important because gains in an after-tax 401(k) are taxed when withdrawn. Distributions from a Roth 401(k) or Roth IRA typically aren’t.
It may be easier to roll funds into the Roth 401(k). Jen may even be able to get her custodian (such as Fidelity) to transfer her after-tax 401(k) contributions to a Roth 401(k) automatically.
The fancy term for this process is Mega Roth or Mega Backdoor Roth.
Spousal IRA
A fourth retirement plan is outside the employer altogether.
A spousal Individual Retirement Arrangement (IRA) is an account a spouse can contribute to despite earning little or no income.
If the couple is married and files a joint tax return, they may be able to:
stash some cash into the spouse’s account,
reduce their tax bill, and
invest for long-term growth.
Here’s the best part: a 2024 contribution can be made until 4/15/2025! The February bonus may be perfect for a last-minute spousal IRA contribution.
Whether the contribution would lower taxable income depends on:
whether the spouse was covered by a retirement plan at work and
how much the couple earned in 2024.
Below is a quick decision tree based on whether the spouse is or is not covered by a workplace retirement plan.
For more tax saving ideas, check out 5 Ways to Lower Taxes Besides Donations. Whether to contribute to pre-tax, after-tax, or both depends on someone’s situation and goals.
Yikes - that was a lot about raises and bonuses!
However, it’s so important that it deserved some extra love. ❤️
2. Schedule tax prep meeting
Another step tech professionals and their families might take in February is to schedule their tax prep conversation.
Even if taxes are self-prepared, it’s important to dedicate time to them.
Scheduling time is even more important when working with a tax preparer! They’re generally overworked and in high demand.
Get organized and come prepared!
3. Gather tax forms and create checklist
One way to get organized is to create both a physical and digital folder for 2024 tax documents.
Physical folder
All tax documents received in the mail would ideally go right into the tax folder.
W-2: salaries, wages, and taxes withheld;
Form 1095: health insurance coverage details;
Form 1098: mortgage repayment, interest, and property taxes;
Form 1099: many uses;
Form 3922: details on stock purchased through a qualifying plan like an Employee Stock Purchase Plan (ESPP); and
Schedule K-1: income, losses, and dividends for partnerships, S corporations, trusts, and estates.
Some of the most common types of Form 1099 are:
NEC: Nonemployee Compensation (freelance income);
B: gain or loss on stock;
INT: interest;
DIV: dividends;
R: retirement plans;
T: tuition payments;
MISC: miscellaneous, etc.
A custodian (Fidelity, Vanguard, Schwab…) may include several forms in one file.
Digital folder
It’s best to save digital versions of all tax documents.
Two options include:
downloading directly from financial institutions and
scanning a copy of forms received in the mail.
Even if I receive a physical copy, I like to download the forms. It’s a way for me to double-check I don’t miss anything and that I’m using the latest version.
Places to download forms include:
banks and credit unions for interest paid or received,
custodians for investments, and
employer portals for W-2 compensation detail.
Since personal credit card interest usually isn’t deductible, those statements rarely need to be downloaded.
However, it’s a good idea to check every other financial account for important tax documents. Streamlining the number of accounts reduces workload - especially during tax season!
Tax checklist
Everyone’s busy. Things get missed - even by tax preparers!
Checklists
Crashes happened frequently in the early days of aviation. Adding checklists significantly improved safety.
Checklists have spread to other areas like:
building construction,
truck driving, and
surgery.
We even use checklists when preparing to sail!
Example:
One thing I like to do both for myself and for clients is draft a tax checklist. It lists everything I think could impact taxes for the year!
A good place to start is the previous year’s tax documents:
Which still apply?
Did anything change?
Creating the checklist reminds me of other things!
My personal checklist is in Microsoft Excel. I:
start with last year’s list,
remove what’s no longer relevant, and
add new items.
As I work through the list, I cross them off and record the date accomplished.
Once all the actions are complete, I carefully review our tax return inputs with my wife. Explaining the taxes helps clarify our thinking! She asks wonderful questions and checks other tax-impacting items.
Measure twice, cut once.
4. Accept Restricted Stock Unit (RSU) grant
Restricted Stock Unit grant
It typically makes sense to accept RSU grants once they’re available.
Even if someone is certain they’re going to leave their employer, it still makes sense to accept grants!
Some situations might result in a partial or complete vest:
new manager, team, department, or role,
layoff,
merger or acquisition,
employee death…
Accepting the grant early ensures it isn’t forgotten.
Restricted Stock Unit vest
The RSU vesting schedule depends on the company.
Last year, T-Mobile started issuing grants which vest every six months instead of once a year. For employees with grants from multiple years, they’ll likely still receive more shares around February 25th. However, they’ll probably also receive a sizable vest around August 25th. It may take a business day or two for shares to settle into employee accounts.
For most employees, some units are automatically sold to cover taxes. Employers provide the custodian with a tax percentage estimate. The custodian (such as Fidelity) then sells shares and sends the proceeds to the IRS and state governments for income taxes.
There’s good, bad, and great news for employees:
good - may not have to manually pay the RSU taxes;
bad - receive fewer shares of company stock; and
great - may be able to sell shares without paying additional tax.
Choosing to keep the shares is like an employee taking cash out of their checking account to buy more company stock.
Is that what they want to do? 🤔
For more, check out:
How Are Restricted Stock Units Taxed?
5. Review / rebalance investment portfolio
After a bonus is paid or Restricted Stock Units (RSUs) vest is a great time for a tech professional to rebalance their portfolio.
It may be important to have at least three to six (3-6) months’ of living expenses in an emergency and opportunity fund.
Asset allocation
Next, check that the family’s investment categories are close to their target percentages.
It’s common for market performance and recent income to throw off the allocation.
For example, tech stocks have had a wonderful run recently. Families might have too much riding on this one industry!
Asset location
Then consider whether each investment is held in the right account.
If either the asset allocation or location is off, it likely makes sense to adjust. However, it’s important to consider the tax impact.
Hey, thanks for reading my post on potential financial steps for tech employees in February. Happy Valentine’s Day! 💝
Just a reminder, I share a lot of resources that can help you.
Disclaimer
In addition to the usual disclaimers, neither this post nor this image includes any financial, tax, or legal advice.
