Potential Financial Steps for T-Mobile Employees in May
By Kevin Estes
Nearly Summer
Families with school-age children are BUSY. If that’s you:
You’ve got this!
Fortunately, summer’s almost here.
Potential Steps for T-Mobile Employees This Month
Financial steps T-Mobile employees might take in May include:
Review tax withholding (Form W-4)
Update goals and financial plan
Check student loan / other debt balances
Fund education savings
Schedule fall Paid Time Off (PTO)
1. Review Tax Withholding (Form W-4)
Tax returns and payments can be unnecessarily painful.
Owe Often?
Paying tax when filing pinches cash flow. It could require someone to sell assets that have gone up value, further increasing taxes.
Psychologically, it can be tough to click “submit” on the payment. Having to pay can create angst and even anxiety.
If someone owes enough, they may have to pay interest charges or penalties.
These are reasons tax software often recommends making more payments throughout the year.
Consistent Refund?
There also are downsides to receiving refunds each year.
Some credits are non-refundable. A taxpayer might pay more in tax because they paid extra!
Getting a refund is like giving the government an interest-free loan. Those funds would likely earn more interest now than a few years ago.
Assets values tend to rise over time. On average, having less invested results in less growth.
Unique Situations
Less tax may be withheld than needed, including for:
Bonuses. A company might only withhold 22% of bonuses for an employee in the 35% tax bracket.
RSUs and PSUs. A company plan might only sell 22% of Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) as they vest to cover taxes. Remember: vests are treated like income.
Other Business Income. Business income can raise personal income taxes. Real estate is a common example.
W-4: More Than Dependents
People sometimes think all they can do on their Form W-4 is update their dependents as their family changes. That’s not true!
For instance, they can declare fewer dependents than they have. They can also have more withheld from their paychecks for both state and federal taxes.
Cash Flow
Before making a change, it’s important to consider the cash flow impact. Can someone afford more taken out of their paychecks?
Bonus payouts and Restricted Stock Unit (RSU) vests often occur early in the year. That may be a feature, not a bug! Those might fund taxes.
How to Update
Companies usually have the Form W-4 and instructions on their intranet.
If not, a Human Resources (HR) teammate will have access and know how to update it.
2. Update Goals and Financial Plan
I like to think of finances like surfing.
We can plan but many things are beyond our control:
sometimes, there’s a perfect wave
often, it’s a lot of waiting
watch out for sharks!
Refresh Goals
Situations change.
Someone could expect to pay in-state tuition until but then their child:
gets a full-ride scholarship or
is accepted to an Ivy League school
The stock market might rise or fall 20% in a year… or more!
Someone could get promoted or laid off.
A couple may want to retire to a warmer climate - until grandchildren come along.
Goals adapt accordingly!
Update Plans
Major changes impact a financial plan. That’s life!
I like what Dwight Eisenhower said:
Plans are useless,
but planning is indispensable.
It’s unfortunate how some software labels plans successes or failures. I’m looking at you, Monte Carlo.
It’s not success or failure. It’s how much to adjust in which direction! People adapt.
3. Check Student Loans / Other Debt Balances
Late spring is a good time to check loan balances.
Student Loans
Paying student loan debt off may not be a priority:
The interest rate may be low
Loans might be forgiven with consistent on-time payments
Student loans are discharged at death
Instead, a focus on investing and saving could leave more to loved ones. “Die with debt” can be a valid plan!
Consumer Debt
There are many methods for paying off debt, including snowball and avalanche.
Snowball
The snowball method pays off the lowest balance account first, then the next lowest, and so on.
Pros
Wins now - creates momentum by paying off the first debt
Cuts payments - no payments for paid debts
Reduces mindshare quickly - leaves fewer accounts to manage
Cons
Pays more interest - unlikely to pay higher interest debt first
Improves credit slower - does not lower high balances quickly
Repays less quickly - higher interest means less is paid off
Avalanche
The avalanche method pays off the balance with the highest interest rate first, then the next highest, and so on.
Pros
Minimizes interest - highest interest debt is paid first
Improves credit faster - credit utilization falls quicker
Maximizes repayment - more is paid with lower interest rates
Cons
Wins later - takes longer to pay off the first balance
Keeps payments - more accounts need a monthly payment
Holds attention longer - extends how long accounts are managed
4. Fund Education Savings
It could also be a good time to fund education savings accounts.
Funding priorities depend on location, income, and assets.
Location
States without income tax like Washington and Texas offer no immediate tax benefit of saving to a 529 plan.
Other states like California and Kentucky don’t allow 529 contributions to be deducted.
The benefit of 529 contributions also depend on each state’s:
marginal income tax rate
state tax deduction cap
deduction or credit structure
taxpayer or beneficiary limit
tax parity policy…
Income
Fortunately, 529 plans do not have an income limit for contributions.
However, many other education options do. 2023 income limits included:
Contribute $2,000 to a Coverdell Education Savings Account (ESA) with Modified Adjusted Gross Income (MAGI) below $110,000 single or $220,000 married filing jointly
Receive an American Opportunity Credit of $2,500 per student with Modified Adjusted Gross Income (MAGI) below $90,000 single or $180,000 married filing jointly
Earn a Lifetime Learning Credit of $2,000 per return with Modified Adjusted Gross Income (MAGI) below $90,000 single or $180,000 married filing jointly
Exclude income tax on EE or I Bonds with Modified Adjusted Gross Income (MAGI) below $106,850 single and $167,800 married filing jointly
Deduct student loan interest paid with Modified Adjusted Gross Income below $90,000 single and $185,000 married filing jointly
Additional restrictions and phaseouts apply. Many income limits change annually.
Assets
Who owns an asset can also impact financial aid.
Up to 5.64% of the asset will count toward the Student Aid Index (SAI) if owned by a parent.
Up to 20% of the asset will count toward the Student Aid Index (SAI) if owned by a student.
The Student Aid Index (SAI) recently replaced the Expected Family Contribution (EFC) on the Free Application for Federal Student Aid (FAFSA®) form.
How each school factors assets into its own financial aid is even more variable. For instance:
Northwestern University includes home equity when calculating financial aid.
Stanford University does not.
5. Schedule Fall Paid Time Off (PTO)
You've already scheduled your summer vacations, right? RIGHT?
If so, now’s a good time to plan fall vacations.
Rentals and hotels get booked.
Flights prices rise.
Calendars fill.
It’s not just the schedule of friends and family. It's coworkers’, too!
Scheduling Paid Time Off (PTO) early is like calling dibs.
For more, check out: Schedule Your PTO ASAP.
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.
