Potential Financial Steps for T-Mobile Employees in April
By Kevin Estes
In bloom
Wow, is it ever nice here in the Pacific Northwest! The rain stopped, the sun’s out, and it’s much warmer.
It was great to connect with so many neighbors at our local Easter Egg Hunt on Saturday.
Potential steps for T-Mobile employees this month
Financial steps T-Mobile employees might take in April include:
Evaluate stock purchased at a discount
File tax return(s) or extension(s)
Make tax payment(s) or plan refund(s)
Review / rebalance investment portfolio
Replenish emergency fund
Review tax return(s)
1. Evaluate stock purchased at a discount
Employees who participated in T-Mobile’s Employee Stock Purchase Plan may be in for a welcome surprise.
ESPP Purchase
Although not final, the stock closed at about:
$140 on 9/29/2023
$163 on 3/28/2024
The six-month lookback features takes the lower of the price at the beginning and end of the six months.
15% off $140 is about a $119 purchase price.
Funds contributed may result in a gain of about 37%:
gain of $44 ($163 less $119)
divided by $119
For more, check out: How Does an ESPP Work?
Employer risk
We have a lot riding on our employers:
income,
retirement contributions,
insurance,
benefits…
Employees who live near a major office for their employer may also risk the vale of their:
home(s),
real estate investment(s), or
small business(es).
Risk and return
We love our employers. That’s why we work there!
However, on average - they’re average.
They also have additional risk because of single stock exposure. That’s the risk something bad happens to a particular company:
a competitor enters their space,
an executive makes a poor strategic decision,
someone cooks the books…
Owning a single stock has higher risk for the same expected return. On average, that’s a poor investment.
Of course, there are may possible outcomes. Volatility might be a good thing if the big move is upward!
A good investment can underperform. A bad one can do well.
For more, check out: Hold Employer Stock?
2. File tax return(s) or extension(s)
Before filing for a tax return, it’s worth double-checking for last-minute contribution opportunities.
There’s still time!
Some plans still accept contributions for 2023 until April 15, 2024.
These include:
Traditional Individual Retirement Arrangement (IRA),
Roth Individual Retirement Arrangement (IRA),
Health Savings Account (HSA), and more.
Traditional IRA contributions are often overlooked. They’re especially helpful for spouses who don’t have access to a retirement plan at work.
A Spousal IRA contribution may reduce taxable income, depending on whether:
the spouse was covered by a retirement plan at work and
the couple’s married, filing jointly income
The deduction is phased out above the following Modified Adjusted Gross Income (MAGI) limits in 2023:
For more, see: Ignoring the Spousal IRA?
The time is nigh
The deadline to file personal taxes is April 15, 2024.
May businesses have a deadline of March 15 to give investors a month to include business income (such as Schedule K-1’s) in their personal returns.
A personal extension filed by April 15th pushes the filing deadline to October 15th. However, taxpayers still need to pay any tax due by April 15th to avoid underpayment interest and penalties.
3. Make tax payment(s) or plan refund(s)
In a perfect world, a taxpayer would neither owe a filing tax payment nor receive a refund. However, that rarely happens.
Bad extremes
It’s less than ideal to either:
make a sizable tax payment or
receive a significant discount.
Making a large payment is hard both psychologically and on cash flow. Underpayment can also incur interest and fees - even if paid when the tax return is filed.
Receiving a big refund is also a problem. It means someone essentially gave an interest-free loan to the government!
How to pay the tax
If a taxpayer has to pay with their tax return, it’s important to mindfully source the funds. Will they:
dip into their emergency / opportunity fund?
go on a payment plan?
sell an investment?
Selling an appreciated investment may drive up taxes this year!
If a household consistently has to pay when filing taxes, it may make sense to:
make quarterly estimated payments,
adjust their W-4 withholding with their employer, or
both.
What to do with a refund
Consider the highest and best use of a refund:
build up an emergency / opportunity fund?
pay down high interest debt?
increase deductibles?
make a payment in advance for a hefty discount?…
Will the money be needed over the next few months or can it be invested? Keep in mind that it may take weeks for the refund to arrive.
Planning cash flow is especially important for T-Mobile employees, who are often flush with cash this time of year after receiving their:
annual bonus,
merit increase,
Restricted Stock Units (RSUs), and
stock purchased through the Employee Stock Purchase Plan (ESPP).
How to invest the refund
If it can be invested, would it be best to contribute to a:
401(k) up to the company match or even contribution limit?
Employee Stock Purchase Plan (ESPP)?
traditional or Roth IRA?
Health Savings Account (HSA)?
taxable brokerage account?
small business?
real estate investment?
For more on saving and investing, check out:
Your Last Career Will Be Investor
Own Stock or Contribute to ESPP?
If considering a real estate investment, it’s important for it to be profitable. Real estate losses are often classified as passive losses. They may not lower taxable income until sold.
Feeding a property cash every month can be particularly painful if:
income drops,
property values fall, or
both.
For more, check out: Investing in or Betting on Real Estate?
4. Review / rebalance investment portfolio
Recent events may have impacted a portfolio.
A household may have:
received a sizable bonus in February, pushing their cash balance above what’s needed,
vested shares of stock through Restricted Stock Units (RSUs) in February, and
just purchased shares of stock at a discount through the Employee Stock Purchase Plan (ESPP).
In addition, the stock market has performed well recently. The S&P 500 index has risen over 10% year to date!
Rapid appreciation in equities can leave a portfolio more aggressively invested. It’s important to check allocations are in line with their targets.
It may also make sense to ensure dividends are set up for automatic reinvestment. That’s especially important for broadly diversified investments. Interest from high-yield savings and money market mutual funds may have accumulated a significant amount of cash. Investing this additional cash may improve returns.
For more investment considerations, check out:
5. Replenish emergency fund
Now’s a great time to check up on the emergency / opportunity fund.
Recurring expenses
I generally suggest someone keep about three (3) to six (6) months of living expenses in cash or cash equivalents.
Factors that could push the household’s target up to the higher end or even higher include having:
a single income source,
variable income,
real estate,
job uncertainty, and the like.
Major purchases
It’s important to also add any upcoming expenses like:
summer vacations and camps,
home improvement projects,
compensation claw backs,
vehicle purchases,
new business ventures, and
real estate purchases.
Investments in stocks, bonds, automobiles, real estate, cryptocurrencies, and the like don’t count for an emergency / opportunity fund!
Even though they may be sold quickly, the market can move even faster.
With interest rates where they are today, high-yield savings account and money market mutual funds might pay 4% or more. Because traditional checking accounts pay very little interest, moving funds to a higher yield account might result in an extra:
$400 a year for $10,000
$2,000 a year for $50,000
$4,000 a year for $100,000
However, it’s important to keep some in a checking account for ongoing expenses. It’s critical to pay bills on time to avoid late fees, penalties, and credit score blemishes.
For more, see: Is Your Cash Starving?
6. Review tax return(s)
As important as preparing and submitting a tax return is reviewing it when the pressure’s off.
Reviewing a tax return with a professional can be insightful. Tax preparers generally have more time after April 15th!
Here are some potential questions to answer:
What were the marginal and effective tax rates?
What lowered taxes?
Were there any missed opportunities?
How can we minimize lifetime taxes?
For more, check out:
What’s missing?
Is anything missing from this list? If so, please let me know!
If you’re interested in a review of your specific situation…
Disclaimer
In addition to the usual disclaimers, neither this post nor these images include any financial, tax, or legal advice.
