Potential Financial Steps for T-Mobile Employees in February
By Kevin Estes
Most wonderful time of the year
Forget December. The most wonderful time of the year for T-Mobile employees is February!
That’s when they:
get their raise
receive their annual bonus
vest Restricted Stock Units (RSUs)
Potential steps for T-Mobile employees this month
Financial steps T-Mobile employees might take in February include:
Update saving for raise and bonus
Schedule tax prep meeting
Gather tax forms and create checklist
Accept Restricted Stock Units and grant
Review / rebalance investment portfolio
1. Update saving for raise and bonus
The 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?
The most important thing about a raise is whether it kept up with inflation.
According to the U.S. Bureau of Labor Statistics, the 12-month percentage change in the Consumer Price Index ending December 2023 was 3.4%.
If someone’s raise was below 3%, it may be because they:
recently received a raise,
accepted a promotion, or
are at the top end of their pay band.
It might also be a sign of trouble in their current position.
More Saving
Raises help employees automatically save more.
Example:
Let’s say Bob was earning $100,000 and received 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 receive the full T-Mobile match.
Without any other changes, his pre-tax 401(k) contributions would rise $360 for the year.
Bob’s contributions +$200:
from $5,000, 5% of $100,000
to $5,200, 5% of $104,000
T-Mobile’s matching contributions +$160:
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 percentage from 5% to 7%.
His 401(k) contributions would rise $2,440 for the year!
Bob’s contributions +$2,280
from $5,000, 5% of $100,000
to $7,280, 7% of $104,000
…plus his T-Mobile match increase of +$160.
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 grandfathers’ raises. It worked well.
Bonus
The T-Mobile annual bonus is no joke.
Many salaried employees are on the Short-Term Incentive Plan (STIP). It has both an individual and a company component; the split varies by pay level.
Individual Bonus
The individual piece is based on the employee’s performance according to their leadership:
Above 100% is good
Below it… not so much
Individual payouts were clustered tightly at just over 100% for years. However, there was a push to add more variation as an incentive for employees to put in additional effort.
Company Bonus
The company piece is tie to T-Mobile’s overall performance. It’s based on company performance relative to 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 - if things went poorly for the company that year.
There’s good and bad news with bonus payouts:
Good - they provide significant income
Bad - they’re heavily taxed
Bonus Retirement Saving Options
Three saving options within the T-Mobile retirement plan are:
pre-tax 401(k)
Roth 401(k)
after-tax
There’s also a spousal IRA saving option outside of T-Mobile.
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
reduces how much needs to be taken out of the biweekly paychecks to reach the contribution limit
The 2024 employee contribution limits are:
$23,000 for those less than 50 years old
$30,500 for those aged 50 and wiser
Roth 401(k)
Another option is the Roth 401(k) - sometimes shortened to Roth(k).
The benefit with the Roth is that someone pays the income taxes now and - if the withdrawals meet certain criteria - never pays income taxes on it again!
The Roth option might appeal to someone if they:
don’t need the money to fund their living expenses or high-interest 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
An option T-Mobile added more recently is the after-tax contribution.
It’s especially helpful for higher income employees looking to save on top of pre-tax contributions like:
401(k) and
Health Savings Account.
According to the IRS, the 2024 contribution limits are:
$23,000 for employee deferrals like the pre-tax 401(k)
$69,000 in total defined benefits
The T-Mobile match also counts toward the $69,000 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 $23,000. T-Mobile also matches $10,000 (4% of $250,000).
That leaves her $36,000 to contribute to her after-tax account:
$69,000 total defined benefits limit
less $23,000 employee contribution
less $10,000 company match
Since T-Mobile allows someone to move money out of their after-tax account while still employed, Jen can sweep those funds directly into a Roth IRA.
If she uses her bonus check, she may only have to do the transfer once a year. She could also set the contributions up to be automatically transferred (converted) to her Roth IRA with a call to Fidelity.
The fancy term for this is Mega Roth. It’s sometimes referred to as a Mega Backdoor Roth.
Don’t worry! Congress blessed it.
Spousal IRA
A fourth retirement plan is outside T-Mobile 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,
invest it for long-term growth, and
reduce their tax bill.
Here’s the best part: a 2023 contribution can be made until 4/15/2024! The February bonus may be the perfect time for a last-minute retirement plan contribution.
Whether it would lower taxable income depends on:
whether the spouse was covered by a retirement plan at work and
how much the couple earned in 2023.
Here’s a quick decision tree with the limits:
For more ideas, check out the article 5 Ways to Lower Taxes Besides Donations.
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 T-Mobile employees and their families might take this month 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 professional! They’re 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 2023 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: has many variations
Form 3922: details on stock purchased through a qualifying stock purchase plan like T-Mobile’s Employee Stock Purchase Plan (ESPP)
Schedule K-1: income, losses, and dividends for partnerships, S corporations, trusts, and estates
Some of the most common flavors of Form 1099 are
NEC: Nonemployee Compensation (freelance income)
B: gain or loss of stock
INT: interest
DIV: dividends
R: retirement plans
T: tuition payments
MISC: miscellaneous…
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 good options include:
download the forms directly from financial institutions
scan a copy of forms received by mail
Even if I receive a physical copy, I like to download the forms. It’s a way for me to double-check I didn’t miss anything and that I’m using the latest version.
Common places to download forms include:
Banks and credit unions for interest paid or received
Custodians for investments
Employer portal for W-2 compensation detail
Since 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!
Crashes happened frequently in the early days of aviation. Implementing simple checklists significantly improved safety.
Checklists have expanded to other areas like:
building construction
truck driving
surgery
We even use checklists when getting ready to sail!
One thing I like to do both for myself and for clients is draft a tax checklist. It lists everything I know that could impact taxes for the year!
A good place to start is the previous year’s tax documents:
Which still apply?
Are there any changes?
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 my thinking! She also asks wonderful clarifying questions and reminds me of other tax-impacting items.
Measure twice, cut once.
4. Accept Restricted Stock Units and grant
Restricted Stock Unit vest
T-Mobile’s Restricted Stock Units (RSUs) usually vest around February 25th each year. It may take a business day or two for the TMUS shares to settle into employee accounts.
For most employees, some units are automatically sold to cover taxes. T-Mobile provides Fidelity with an estimated tax percentage. Fidelity then sells those shares and sends the proceeds to the IRS (and states) for income taxes.
There’s good, bad, and great news for employees:
Good - don’t have to manually pay the RSU taxes
Bad - receive fewer shares of TMUS
Great - may be able to sell the shares immediately and pay no additional taxes
From a tax perspective, choosing to keep the shares is the same an employee taking cash out of their checking account to purchase more company stock.
Is that what they want to do? 🤔
For more on the subject, check out:
How Are Restricted Stock Units Taxed?
Restricted Stock Unit grant
It’s important to accept stock grants as soon as they’re made available.
Even if someone is certain they’re going to leave T-Mobile, it still makes sense to accept the grant!
A variety of situations might result in a partial or complete vest:
new manager, team, department, or role,
layoff,
merger or acquisition,
employee death…
Accepting the next grant early ensures it isn’t missed.
5. Review / rebalance investment portfolio
A great time for a T-Mobile employee to rebalance their portfolio is after the annual bonus is paid and Restricted Stock Units (RSUs) vest.
It’s critical to have a 3-6+ month emergency / opportunity fund. Check out the article Is Your Cash Starving? for more.
Asset allocation
After prioritizing liquidity, the next step is to check the family’s investment categories are close to their target percentages.
It’s common for market performance and recent compensation to throw the allocation off balance.
For example, tech stocks have had a wonderful run recently. T-Mobile families might have too much riding on this one industry!
Asset location
The next step is to consider whether each investment is held in the right account. Check out the article Are My Assets in the Right Location? for more.
If either the portfolio allocation or asset location are off, it likely makes sense to adjust.
I hope this helps. Happy Valentine’s Day! 💝
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 this image includes any financial, tax, or legal advice.
