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Optimizing Your Microsoft Employee Benefits

Microsoft provides employees with an excellent benefits package. This creates a lot of financial planning opportunities. In this post we’ll look at the benefits a Microsoft employee can look to optimize. The biggest opportunities come in Microsoft’s 401K plan, employee stock purchase plan, deferred compensation program, restricted stock unit grants, health insurance, and charitable donation matching. 


Microsoft matches 50% of employee 401K contributions up to the basic IRS deferral limit. Thus if you contribute the 2022 maximum of $20,500 into your 401K, Microsoft will kick in an additional $10,250 on your behalf. That match can have a serious boost on your savings and I think provides the best return on your investment of any benefit program at the company. 

Mega Backdoor Roth Contributions

Microsoft’s 401K plan allows you to make after tax contributions to your 401K and then roll them into a Roth, which makes the mega backdoor Roth strategy possible. 

For 2022, the Federal limit for total contributions to a 401K is $61K. To make a backdoor contribution you would first max out your normal 401K contribution of $20,500 and receive $10,250 in matching contributions from Microsoft. You can then make an additional $30,250 after tax contribution which can be rolled into a Roth. The following graphic helps illustrate this:

Employee Stock Purchase Plan (ESPP)

Microsoft employees can contribute up to 15% of their salary to purchase Microsoft shares. At the end of each quarter the money you set aside into the ESPP program will  purchase Microsoft stock at a 10% discount to the stock’s market value at the end of the period. 

Selling your shares as soon as they vest locks in your return based on the discount you received on the shares. I generally recommend this route as your financial future is already significantly tied up in your employer and it’s generally not advisable to have such significant single stock exposure. 

However, depending on the plan grant date and your holding period of the stock you may be taxed at more preferential capital gains tax rates if you hold the shares and sell them in the future. 

Deferred Compensation

Microsoft employees level 67 and above are generally allowed to participate in Microsoft’s Deferred Compensation Program. This is a great option that can provide massive tax savings. However, it also introduces a lot of planning complexity. 

Employees in the plan can defer up to 75% of their salary and 100% of their bonus. Your salary deferral election for the following year is made in November. The bonus deferral election is made in May. Along with choosing how much of your salary to defer, employees need to select the mutual funds that the deferred compensation’s growth will be tied to.

Finally, an employee participating in the plan needs to choose their distribution schedule. This is usually a set number of years or at retirement or leaving the company. Future scheduled distributions can be delayed but they must be extended at least 5 years and the election to do so must be made at least 1 year before the scheduled distribution date. 

To optimize your contributions to a deferred compensation plan you’ll want to consider your current vs future earnings and tax rates as well as your cash flow situation. With many employees participating in this program also receiving a large amount of restricted stock compensation it can introduce additional uncertainty in estimating your cash flow.

A final note of caution is that participating in a deferred compensation program makes you an unsecured creditor of your employer. Fortunately, Microsoft is in a strong financial position and their debt is currently rated AAA. 

Restricted Stock Units (RSUs)

On-hire RSU awards at Microsoft usually vest over 4 years (25% per year). The first vesting date occurs one year after your hire date. Annual stock awards are given out in August and have a 5 year vesting schedule (20% per year) that occurs quarterly.

Typically those at higher levels at Microsoft receive a greater proportion of their income from RSUs. 

I advise those receiving RSU compensation to sell their shares as soon as they vest. A 10b5-1 trading plan can be set up to automatically sell shares that have vested for those subject to trading windows. Not selling shares is essentially making the decision to purchase Microsoft stock on the vesting date. If you’re not usually in the business of putting in the time and research to analyze individual securities I wouldn’t recommend you buy individual stocks in any company. It’s even less advisable when it’s your own employer who you’re already heavily exposed to via your employment, unvested RSUs, and other compensation. 

Health Insurance

Microsoft offers a number of medical insurance plans for employees. One option is a high deductible health plan that offers a Health Savings Account (HSA). 

The 2022 contribution limit to an HSA is $3,650 for an individual and $7,300 for a family. That limit includes employer contributions made on your behalf. 

Personally I’m a fan of HSA plans. HSA funds are a great vehicle as they grow tax-free and have no required withdrawals. As long as withdrawals are used for qualified medical expenses any withdrawals are tax free. 

Microsoft also offers vision and dental insurance to employees free of charge. For those with large known expenditures coming up the company allows flexible spending accounts (FSAs) as well. 

Charitable Donation Matching & Volunteer Time

Microsoft will match gifts to qualified charitable organizations up to $15K. Volunteer work is also matched with a $25 per hour contribution to qualified organizations. 

Life & Disability Insurance

Microsoft provides life insurance equal to 2 times an employee’s salary at no cost. Supplemental insurance can be purchased but I’d suggest comparing the cost to outside plans. 

Disability insurance is provided equal to 60% of an employee’s salary up to $15K per month. Short-term benefits will cover your total salary/bonus for 7 weeks, followed by 18 weeks of coverage at 75%. 

Miscellaneous Benefits 

  • Gym/Wellness Reimbursement – up to $1,200 per year
  • Relocation – Either a lump sum or an assistance package covering various expenses 
  • Parental Leave – 20 weeks paid time away for birth mothers and 12 weeks for all other new parents (including adoptions and foster placements)

If you want to learn more about how to optimize your benefits for your financial situation, please feel free to reach out. 

Scott Caufield, CFA, CPA