Financial Strategies for Microsoft Employees

Suggestions on strategies to optimize your finances, with a focus on opportunities afforded to Microsoft employees.

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Financial Strategies for Microsoft Employees

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Suggestions on strategies to optimize your finances, with a focus on opportunities afforded to Microsoft employees.
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Slide Content
  1. Ben Poon

    Slide 1 - Ben Poon

    • bpoon@microsoft.com
    • www.ben61a.com
  2. The best time to plant a tree is twenty years ago…

    Slide 2 - The best time to plant a tree is twenty years ago…

    • The second-best time is today.
  3. Slide 4

    • Federal
    • State
    • Local
    • Income
    • Earners of money pay a percentage of the amount of money they earned
    • Payroll
    • Employers and employees pay a percentage of salaries for social security, Medicare, etc.
    • Sales
    • Purchasers of some goods and services pay a percentage of the purchase price
    • Property
    • Property owners pay taxes, usually based on the property’s value
    • Estate
    • Someone who dies pays a percentage of the dollar value of all material passed to their heirs
    • Gift
    • Donors pay a percentage of the dollar value of donated property
    • Import
    • Importers pay taxes usually based on the imported object’s value
    • And more!
  4. I HAVE TO GET EVERYONE’S WIFI PASSWORD AGAIN

    Slide 5 - I HAVE TO GET EVERYONE’S WIFI PASSWORD AGAIN

    • FOR MY NEW PHONE
  5. You

    Slide 6 - You

    • Government
    • Bi-weekly
    • Paycheck
    • Withholding
    • Bi-weekly
    • Pretax Income
    • https://w4/
    • Income Tax Withholding
  6. Income Tax Withholding

    Slide 7 - Income Tax Withholding

    • Scenario B: You do your income tax and calculate a total federal tax bill of $5,000. Even though $4,800 was already withheld, you still owe $200 in income tax.
    • Scenario A: You do your income tax and calculate a total federal tax bill of $4,000. Since $4,800 was already withheld, you overpaid $800 and will receive that as an income tax refund.
    • You start a new job at Microsoft on January 1
    • On your first day, you fill out your W-4 at
    • https://w4/
    • Microsoft determines based on the W-4 to withhold $200 per paycheck
    • As of December 31, Microsoft withheld $200 x 24 pay periods = $4,800, which was paid as tax on your behalf
    • Scenario A: Ben does his taxes and calculates a total federal tax bill of $4,000. Since $4,800 was already withheld, Ben overpaid $800 and will receive that as an income tax refund.
    • Scenario B: Ben does his taxes and calculates a total federal tax bill of $5,000. Even though $4,800 was already withheld, Ben still owes $200 in income tax.
  7. Types of Income

    Slide 8 - Types of Income

    • Type
    • Source
    • Tax Rate
    • Tax-Exempt
    • Income from municipal bonds
    • Not taxed
    • Capital Gains
    • Profit from selling an asset
    • Capital gains tax rate
    • Ordinary
    • All other income (wages, sales, interest, etc.)
    • Ordinary income tax rates
  8. Slide 9

    • Income Tax Calculation
    • Capital Gains You Received
    • Ordinary Income You Received
    • +
    • Your Capital Gains Tax Rate
    • x
    • Your Ordinary Income Tax Rates
    • x
  9. Ordinary Income Tax Rates

    Slide 10 - Ordinary Income Tax Rates

    • 2013
    • Single
    • Taxable Income
    • $0
    • to $8,925
    • $8,925 
    • to $36,250
    • $36,250 to $87,850
    • $87,850 to $183,250
    • $183,250 to $398,350
    • $398,350 to $400,000
    • $400,000
    • and up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.60%
    • 2013
    • Joint
    • Taxable Income
    • $0
    • to $17,850
    • $17,850 
    • to $72,500
    • $72,500 to $146,400
    • $146,400 to $223,050
    • $223,050 to $398,350
    • $398,350 to $450,000
    • $450,000
    • and up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.60%
    • 2013
    • Head of Household
    • Taxable Income
    • $0
    • to $12,750
    • $12,750 to $48,600
    • $48,600 to $125,450
    • $125,450 to $203,150
    • $203,150 to $398,350
    • $398,350 to $425,000
    • $425,000
    • and up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.60%
  10. Ordinary Income Tax Rates

    Slide 11 - Ordinary Income Tax Rates

    • $100,000
    • Income
    • A single taxpayer earns $100,000 in taxable ordinary income in 2013
  11. Ordinary Income Tax Rates

    Slide 12 - Ordinary Income Tax Rates

    • 2013
    • Single
    • Taxable Income
    • $0
    • to
    • $8,925
    • $8,925 
    • to $36,250
    • $36,250
    • to
    • $87,850
    • $87,850
    • to
    • $183,250
    • $183,250
    • to
    • $398,350
    • $398,350
    • to
    • $400,000
    • $400,000
    • and
    • up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6%
    • $8,925
    • $36,250
    • $87,850
    • $183,250
    • $100,000
    • Income
    • Since the taxpayer is single, we use the blue area for single filers
  12. 2013

    Slide 13 - 2013

    • Single
    • Taxable Income
    • $0
    • to
    • $8,925
    • $8,925 
    • to $36,250
    • $36,250
    • to
    • $87,850
    • $87,850
    • to
    • $183,250
    • $183,250
    • to
    • $398,350
    • $398,350
    • to
    • $400,000
    • $400,000
    • and
    • up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6%
    • Ordinary Income Tax Rates
    • $8,925
    • $36,250
    • $87,850
    • $183,250
    • $100,000
    • Income
    • Taxed at 10%
    • $8,925 x 10% = $893
    • The first $8,925 are taxed at 10%
  13. 2013

    Slide 14 - 2013

    • Single
    • Taxable Income
    • $0
    • to
    • $8,925
    • $8,925 
    • to $36,250
    • $36,250
    • to
    • $87,850
    • $87,850
    • to
    • $183,250
    • $183,250
    • to
    • $398,350
    • $398,350
    • to
    • $400,000
    • $400,000
    • and
    • up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6%
    • Ordinary Income Tax Rates
    • $8,925
    • $36,250
    • $87,850
    • $183,250
    • $100,000
    • Income
    • Taxed at 10%
    • $8,925 x 10% = $893
    • Taxed at 15%
    • ($36,250 - $8,925) x 15% = $4,099
    • The next $27,325 dollars are taxed at 15%
  14. 2013

    Slide 15 - 2013

    • Single
    • Taxable Income
    • $0
    • to
    • $8,925
    • $8,925 
    • to $36,250
    • $36,250
    • to
    • $87,850
    • $87,850
    • to
    • $183,250
    • $183,250
    • to
    • $398,350
    • $398,350
    • to
    • $400,000
    • $400,000
    • and
    • up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6%
    • Ordinary Income Tax Rates
    • $8,925
    • $36,250
    • $87,850
    • $183,250
    • $100,000
    • Income
    • Taxed at 10%
    • $8,925 x 10% = $893
    • Taxed at 15%
    • ($36,250 - $8,925) x 15% = $4,099
    • Taxed at 25%
    • ($87,850 - $36,250) x 25% = $12,900
    • The next $51,600 dollars are taxed at 25%
  15. 2013

    Slide 16 - 2013

    • Single
    • Taxable Income
    • $0
    • to
    • $8,925
    • $8,925 
    • to $36,250
    • $36,250
    • to
    • $87,850
    • $87,850
    • to
    • $183,250
    • $183,250
    • to
    • $398,350
    • $398,350
    • to
    • $400,000
    • $400,000
    • and
    • up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6%
    • Ordinary Income Tax Rates
    • $8,925
    • $36,250
    • $87,850
    • $183,250
    • $100,000
    • Income
    • Taxed at 10%
    • Taxed at 15%
    • Taxed at 25%
    • Taxed at 28%
    • $8,925 x 10% = $892
    • ($36,250 - $8,925) x 15% = $4,099
    • ($87,850 - $36,250) x 25% = $12,900
    • ($100,000 - $87,850) x 28% = $3,402
    • The final $12,150 dollars are taxed at 28%
  16. 2013

    Slide 17 - 2013

    • Single
    • Taxable Income
    • $0
    • to
    • $8,925
    • $8,925 
    • to $36,250
    • $36,250
    • to
    • $87,850
    • $87,850
    • to
    • $183,250
    • $183,250
    • to
    • $398,350
    • $398,350
    • to
    • $400,000
    • $400,000
    • and
    • up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6%
    • Ordinary Income Tax Rates
    • $8,925
    • $36,250
    • $87,850
    • $183,250
    • $100,000
    • Income
    • Taxed at 10%
    • Taxed at 15%
    • Taxed at 25%
    • Taxed at 28%
    • $8,925 x 10% = $892
    • ($36,250 - $8,925) x 15% = $4,099
    • ($87,850 - $36,250) x 25% = $12,900
    • ($100,000 - $87,850) x 28% = $3,402
    • Total tax = $21,293
    • +
    • The total tax is calculated by summing the tax levied at each tax bracket
    • Note also that the total income tax owed is only $21,293, which is much less than the incorrectly calculated 28% of $100,000 = $28,000
  17. 2013

    Slide 18 - 2013

    • Single
    • Taxable Income
    • $0
    • to
    • $8,925
    • $8,925 
    • to $36,250
    • $36,250
    • to
    • $87,850
    • $87,850
    • to
    • $183,250
    • $183,250
    • to
    • $398,350
    • $398,350
    • to
    • $400,000
    • $400,000
    • and
    • up
    • Rate
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6%
    • Ordinary Income Tax Rates
    • $8,925
    • $36,250
    • $87,850
    • $183,250
    • $100,000
    • Income
    • Taxed at 10%
    • Taxed at 15%
    • Taxed at 25%
    • Taxed at 28%
    • $8,925 x 10% = $892
    • ($36,250 - $8,925) x 15% = $4,099
    • ($87,850 - $36,250) x 25% = $12,900
    • ($100,000 - $87,850) x 28% = $3,402
    • Total tax = $21,293
    • +
    • Understanding your marginal income tax bracket is important because it tells you the rate charged for any additional income you make
    • This taxpayer is considered to be in the 28% marginal income tax bracket
  18. Slide 19

    • Income Tax Calculation
    • Capital Gains You Received
    • Ordinary Income You Received
    • +
    • Your Capital Gains Tax Rate
    • x
    • Your Ordinary Income Tax Rates
    • x
  19. Capital Gains Taxation

    Slide 20 - Capital Gains Taxation

    • Long-Term Capital Gain Tax Rates (2014)
    • Taxpayers in 10% & 15% marginal tax brackets
    • 0%
    • Taxpayers in 25-35% marginal tax brackets
    • 15%
    • Taxpayers in 39.6% marginal tax bracket
    • 20%
    • Ordinary Income
    • Tax Rates
    • 10%
    • 15%
    • 25%
    • 28%
    • 33%
    • 35%
    • 39.6
    • Sell a stock, bond, or real estate
    • For a gain
    • For a loss
    • Having owned it ≥ 1 year
    • Having owned it < 1 year
    • Having owned it ≥ 1 year
    • Having owned it < 1 year
    • Long-term
    • capital gain
    • Short-term
    • capital gain
    • Long-term
    • capital loss
    • Short-term
    • capital loss
  20. Capital Gains Taxation

    Slide 21 - Capital Gains Taxation

    • Long-Term Capital Gain Tax Rates (2014)
    • Taxpayers in 10% & 15% marginal tax brackets
    • 0%
    • Taxpayers in 25-35% marginal tax brackets
    • 15%
    • Taxpayers in 39.6% marginal tax bracket
    • 20%
    • 1. In 2012, you bought MSFT and GOOG
    • 3. In 2014, you sold GOOG for a
    • long-term
    • capital loss
    • of $400
    • 4. For the 2014 tax year, you have a net
    • long-term
    • capital gain
    • of $100, on which you will pay tax at the capital gains tax rate
    • 2. In 2014, you sold MSFT for a
    • long-term
    • capital gain
    • of $500
  21. Capital Gains Taxation

    Slide 22 - Capital Gains Taxation

    • Long-Term Capital Gain Tax Rates (2014)
    • Taxpayers in 10% & 15% marginal tax brackets
    • 0%
    • Taxpayers in 25-35% marginal tax brackets
    • 15%
    • Taxpayers in 39.6% marginal tax bracket
    • 20%
    • Capital gains/losses only apply to assets sold! If an asset has appreciated, but you haven’t sold it, there is absolutely no tax impact until you sell.
  22. Tax Type

    Slide 23 - Tax Type

    • Income Type
    • Tax Rate
    • Tax-Exempt
    • Income from municipal bonds
    • Not taxed
    • Capital Gains
    • Long-Term
    • Profit from selling an asset held over a year
    • Capital gains tax rate
    • Short-Term
    • Profit from selling an asset held under a year
    • Ordinary income tax rates
    • Ordinary
    • All other income (wages, sales, interest, etc.)
    • Ordinary income tax rates
    • Types of Income
  23. Slide 24

    • Income Tax Calculation
    • Long-Term Capital Gains You Received
    • Ordinary Income You Received
    • Including short-term capital gains
    • +
    • Your Capital Gains Tax Rate
    • x
    • Your Ordinary Income Tax Rates
    • x
  24. Dividend Taxation

    Slide 25 - Dividend Taxation

    • Dividend Type
    • Description
    • Tax Rate
    • Qualified
    • Dividends paid by most US corporations to stockholders that have held the stock for a certain amount of time (~60 days before the dividend is paid)
    • Capital gains tax rate
    • Non-Qualified
    • All other dividends (things that are typically taxed at ordinary income tax rates, like taxable interest from a money market mutual fund, dividends from stocks held less than the required holding period of ~60 days, short-term capital gains, etc.)
    • Ordinary income tax rates
  25. Tax Type

    Slide 26 - Tax Type

    • Income Type
    • Tax Rate
    • Tax-Exempt
    • Income from municipal bonds
    • Not taxed
    • Capital Gains
    • Long-Term
    • Profit from selling an asset held over a year
    • Capital gains tax rate
    • Short-Term
    • Profit from selling an asset held under a year
    • Ordinary income tax rates
    • Dividends
    • Qualified
    • Dividends from most US corporations
    • Capital gains tax rate
    • Non-Qualified
    • All other dividends
    • Ordinary income tax rates
    • Ordinary
    • All other income (wages, sales, interest, etc.)
    • Ordinary income tax rates
    • Types of Income
  26. Slide 27

    • Income Tax Calculation
    • Long-Term Capital Gains and Qualified Dividends You Received
    • Ordinary Income You Received
    • Including short-term capital gains and non-qualified dividends
    • +
    • Your Capital Gains Tax Rate
    • x
    • Your Ordinary Income Tax Rates
    • x
  27. Example

    Slide 28 - Example

    • Deductions
    • Encourage certain behaviors
    • Buying homes (interest you pay on a mortgage is tax deductible)
    • Donating to charity (donations to qualified charities are tax deductible)
    • Saving for retirement (contributions to qualified retirement accounts are tax deductible)
    • Account for money that was used to actually produce the income being taxed
    • Expenses a business incurs to make money (gas, advertising, a landlord fixing broken appliances, etc.)
    • Account for money was used to financially support yourself or a dependent
    • Medical expenses are tax deductible if those expenses are above a certain portion of your income
    • Reduce the financial burden of capital loss
    • If you have a net capital loss in a tax year (by having more capital losses than gains), you can deduct the entire loss, $3,000 per year ($1,500 if married filing separately) until your entire loss is deducted:
    • 2010:
    • 1. Incur
    • $7,000 capital loss
    • 2. Deduct $3,000
    • 3. $4,000 capital loss remains
    • 2011:
    • 1.
    • Deduct $3,000
    • 2. $1,000 capital loss remains
    • 2012:
    • Deduct $1,000
  28. Tax Credits

    Slide 29 - Tax Credits

    • Total tax
    • — Tax credits
    • Total tax due
  29. Income Tax

    Slide 30 - Income Tax

    • Your Capital Gains Tax Rate
    • x
    • Ordinary Income You Received
    • Including Short-Term Capital Gains and Non-Qualified Dividends
    • Minus Deductions
    • Your Ordinary Income Tax Rates
    • x
    • +
    • Sum
    • Total Income Tax You Owe
    • Minus Tax Credits
    • Long-Term Capital Gains and Qualified Dividends You Received
  30. Tax Withholding Optimization

    Slide 32 - Tax Withholding Optimization

    • Amount withheld
    • You are withholding too much
    • This money is earning 0% interest
    • You are withholding the right amount
    • Not more than the taxes owed
    • Not so little you are penalized
    • Exact amount of taxes owed
    • Amount below which you will be penalized
    • You are withholding too little
    • You will lose money to tax penalties
  31. Retirement Accounts

    Slide 34 - Retirement Accounts

    • Name
    • Contributions and Investments
    • IRA
    • Individual
    • Retirement
    • Account
    • IRA
    • EPRP
    • Employer-Provided
    • Retirement Plan
    • 401(k)
    • 403(b)
    • IRA
    • Contributions:
    • You transfer money
    • EPRP
    • Contributions: Each paycheck
    • Investments:
    • You decide
    • Investments: Microsoft chooses
  32. Types of Tax Advantages

    Slide 35 - Types of Tax Advantages

    • Contri-butions
    • Growth (cap gains + dividends)
    • Pre-Retirement Withdrawals
    • Retirement Withdrawals
    • Other
    • Tradi-tional
    • Not taxed
    • Not taxed until withdrawal 
    • Taxed as ordinary income and penalized
    • Taxed as ordinary income
    • (since you haven’t yet paid tax on the contributions)
    • A minimum amount is required to be withdrawn yearly after you are 70½
    • Roth
    • Taxed as ordinary income
    • Not taxed
    • Contributions (not growth) can be withdrawn penalty- and tax-free
    • Not taxed
    • (since you already paid tax on the contributions)
    • No withdrawal requirements
  33. Should I Use Traditional or Roth?

    Slide 36 - Should I Use Traditional or Roth?

    • If your marginal tax bracket is currently low (≤15%), consider contributing to Roth accounts while your tax bracket is still low to lock in that low tax rate
    • Otherwise, have a slight preference for using Traditional accounts because:
    • You benefit immediately from lower taxes (it is possible that you never receive the benefit from a Roth account due to changes in the law or an unfortunate early death)
    • You can always convert Traditional to Roth (by paying tax on the conversion amount at your current ordinary income tax rate), but not vice versa
    • You can also simply split your investments between each type to diversify your tax strategy
  34. Many Account Types

    Slide 37 - Many Account Types

    • You can have up to 4 types of tax-advantaged retirement accounts!
    • IRA
    • Roth
    • EPRP
    • Roth
    • IRA
    • Traditional
    • EPRP
    • Traditional
    • Individual
    • Retirement
    • Accounts
    • Employer-
    • Provided
    • Retirement
    • Plans
    • Traditional tax advantages
    • Roth tax
    • advantages
  35. Operating IRAs: Creation

    Slide 38 - Operating IRAs: Creation

    • Create an IRA by opening an account with an investment firm (like Vanguard or Fidelity)
    • At creation, tell the firm whether it should be a Traditional or Roth account
    • You can open multiple IRAs at different investment firms
    • The US government will view all of your Traditional accounts as one big Traditional account
    • They will also view all your Roth accounts as one big Roth account
  36. Ex

    Slide 39 - Ex

    • Operating IRAs: Contribution and Taxes
    • You make contributions by sending money to your investment firm and telling them to credit it to whatever IRA you like
    • You can consider contributions to have been made in the previous calendar year if the contribution is made before April 15 of the current year
    • On April 14, 2014, you can choose to make a contribution for the 2013 tax year)
    • You can make contributions in any amount as many times as you want up to the annual contribution limit (see next slide)
    • For Traditional IRAs, you can deduct your contribution from your ordinary income up to the deduction limit (see later slide)
    • 2014 Income: $50,000
    • Traditional IRA Contribution: $5,500
    • Remaining Income Subject to Taxes: $44,500
  37. Ex

    Slide 40 - Ex

    • Ex
    • Operating IRAs: Contribution Limits
    • Contribution limits are higher for investors close to retirement (≥ age 50)
    • Contribution limits apply across all of a worker’s IRAs, both Traditional and Roth
    • If you are < age 50 with a Traditional and Roth IRA, you can contribute $5,500 max between both
    • Contribution limits are capped at the worker’s taxable income
    • If you are < age 50 and your taxable income in 2014 was $4,900, you can contribute $4,900 maximum to your IRAs in 2014, even though your contribution limit is $5,500
    • Contribution limits generally increase each year to account for inflation (but not for 2015)
    • 2014
    • < Age 50
    • >= Age 50
    • Traditional IRA
    • $5,500
    • $6,500
    • Roth IRA
    • $5,500
    • $6,500
    • More info: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
    • 2015
    • < Age 50
    • >= Age 50
    • Traditional IRA
    • $5,500
    • $6,500
    • Roth IRA
    • $5,500
    • $6,500
  38. Operating IRAs: Roth Contribution Limits

    Slide 41 - Operating IRAs: Roth Contribution Limits

    • More info: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-for-2014
    • If Your Filing Status Is...
    • And Your Modified AGI Is...
    • Then You Can Contribute...
    • Single, head of household, or married filing separately and you did not live with your spouse at any time during the year
    • <$114,000
    • Up to contribution limit
    • ≥$114,000 but <$129,000
    • A reduced amount
    • ≥$129,000
    • 0
    • Married filing jointly or qualifying widow(er)
    • <$181,000
    • Up to contribution limit
    • ≥$181,000 but <$191,000
    • A reduced amount
    • ≥$191,000
    • 0
    • Married filing separately and you lived with your spouse at any time during the year
    •  <$10,000
    • A reduced amount
    • ≥$10,000
    • 0
    • 2014
    • < Age 50
    • >= Age 50
    • Traditional IRA
    • $5,500
    • $6,500
    • Roth IRA
    • $5,500
    • $6,500
    • 2015
    • < Age 50
    • >= Age 50
    • Traditional IRA
    • $5,500
    • $6,500
    • Roth IRA
    • $5,500
    • $6,500
  39. Operating IRAs: Traditional Deduction Limits

    Slide 42 - Operating IRAs: Traditional Deduction Limits

    • If Your Filing Status Is...
    • And Your Modified AGI Is...
    • Then You Can Take...
    • single orhead of household
    • <$59,000
    • a full deduction up to the amount of your contribution limit
    • $59,000 - $69,000
    • a partial deduction
    • $69,000+
    • no deduction
    • married filing jointly or qualifying widow(er)
    • $95,000 or less
    • a full deduction up to the amount of your contribution limit
    • $95,000 - $115,000
    •  a partial deduction
    •  $115,000+
    •  no deduction
    • married filing separately
    • <$10,000
    •  a partial deduction
    •  $10,000+
    •  no deduction
    • If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "Single" filing status.
    • 2014
    • < Age 50
    • >= Age 50
    • Traditional IRA
    • $5,500
    • $6,500
  40. Many Account Types

    Slide 43 - Many Account Types

    • You can have up to 4 types of tax-advantaged retirement accounts!
    • IRA
    • Roth
    • EPRP
    • Roth
    • IRA
    • Traditional
    • EPRP
    • Traditional
    • Individual
    • Retirement
    • Accounts
    • Employer-
    • Provided
    • Retirement
    • Plans
    • Traditional tax advantages
    • Roth tax
    • advantages
  41. Example

    Slide 44 - Example

    • Specifics for 401(k)s
    • Practically any Microsoft employee can contribute to the Microsoft 401(k) with a tax benefit*
    • Microsoft matches half of your 401(k) contributions up to 6% of your salary
    • Microsoft determines the set of available investments in the 401(k)
    • When you leave your job, you can:
    • Leave your 401(k) in Fidelity
    • Move the money into your new company’s EPRP (called a rollover)
    • Move it into an IRA
    • Your monthly salary is $10,000
    • You set your contribution to 10%: $1,000
    • Microsoft matches the maximum half of 6%: $300
    • Example
    • Your monthly salary is $10,000
    • You set your contribution to 5%: $500
    • Microsoft contributes half of that: $250
  42. Operating Your 401(k): Basics

    Slide 45 - Operating Your 401(k): Basics

    • Creation
    • Your employer chooses account types to offer: Traditional, Roth, or both (Microsoft offers both)
    • You instruct Fidelity to open one or more of the offered accounts
    • Contribution
    • You tell Fidelity how much of each paycheck to contribute to each accounts
    • If contributing to a Traditional account, Microsoft payroll deducts the contribution from your salary before calculating taxes:
    • Monthly Salary: $1,000
    • Monthly Traditional EPRP Contribution: $250
    • Remaining Salary Subject to Taxes: $750
  43. Slide 46

    • Fidelity 401(k)
  44. Ex

    Slide 47 - Ex

    • Ex
    • Operating Your 401(k): Contribution Limits
    • Contribution limits are higher for investors close to retirement (≥ age 50)
    • Contribution limits apply across all of an employee’s EPRPs (including 403(b)s but excluding 457s)
    • If you are < age 50 with a Traditional 401(k) and a Roth 401(k), you can contribute a $17,500 maximum across both
    • Contribution limits are capped at the employees’ taxable income
    • If you are < age 50 and your taxable income in 2014 was $16,000, you can contribute a $16,000 maximum to your 401(k) in 2014, even though your contribution limit is $17,500
    • Contribution limits generally increase each year to account for inflation
    • Microsoft stops your contributions automatically once you hit your contribution limit
    • Microsoft’s matching contributions continue if your contributions are stopped in this way
    • 2014
    • < Age 50
    • ≥ Age 50
    • Traditional EPRP
    • $17,500
    • $23,000
    • Roth EPRP
    • $17,500
    • $23,000
    • More info: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Contributions
    • 2015
    • < Age 50
    • ≥ Age 50
    • Traditional EPRP
    • $18,000
    • $24,000
    • Roth EPRP
    • $18,000
    • $24,000
  45. Many Account Types

    Slide 48 - Many Account Types

    • You can have up to 4 types of tax-advantaged retirement accounts!
    • IRA
    • Roth
    • EPRP
    • Roth
    • IRA
    • Traditional
    • EPRP
    • Traditional
    • Individual
    • Retirement
    • Accounts
    • Employer-
    • Provided
    • Retirement
    • Plans
    • Traditional tax advantages
    • Roth tax
    • advantages
  46. Minimize Taxes Using Retirement Accounts

    Slide 49 - Minimize Taxes Using Retirement Accounts

    • 40% more earned
  47. Small Early Savers Beat Big Late Savers

    Slide 50 - Small Early Savers Beat Big Late Savers

    • Small Early Saver
    • Big Late Saver
    • Annual Investment
    • $2,000
    • $4,000
    • Total Years Invested
    • 40
    • 25
    • Total Contributed
    • $80,000
    • $100,000
    • Total Interest Earned
    • $250,000
    • $137,000
    • Total Portfolio
    • $330,000
    • $237,000
    • 40% more saved
    • 40% more saved by contributing 20% less
  48. Contribution Limits for Roth IRAs

    Slide 52 - Contribution Limits for Roth IRAs

    • For taxpayers with income too high for deductible IRAs
    • If Your Filing Status Is...
    • And Your Modified AGI Is...
    • Then You Can Contribute...
    • Single, head of household, or married filing separately and you did not live with your spouse at any time during the year
    • <$114,000
    • Up to contribution limit
    • ≥$114,000 but <$129,000
    • A reduced amount
    • ≥$129,000
    • 0
    • Married filing jointly or qualifying widow(er)
    • <$181,000
    • Up to contribution limit
    • ≥$181,000 but <$191,000
    • A reduced amount
    • ≥$191,000
    • 0
    • Married filing separately and you lived with your spouse at any time during the year
    •  <$10,000
    • A reduced amount
    • ≥$10,000
    • 0
    • 2014
    • < Age 50
    • >= Age 50
    • Traditional IRA
    • $5,500
    • $6,500
    • Roth IRA
    • $5,500
    • $6,500
  49. Getting Around Roth IRA Contribution Limits

    Slide 53 - Getting Around Roth IRA Contribution Limits

    • For taxpayers with income too high for deductible IRAs
    • Backdoor Conduit
    • Maximum Funneled
    • Final Account
    • Backdoor Roth IRA
    • Non-Deductible Traditional IRA
    • Roth IRA
    • Mega Backdoor Roths
    • After-Tax 401(k) Contributions
    • $20,000
    • Roth IRA
    • or
    • Roth 401(k)
    • < Age 50
    • >= Age 50
    • $5,500
    • $6,500
  50. Backdoor Roth IRAs

    Slide 54 - Backdoor Roth IRAs

    • For taxpayers with income too high for deductible IRAs
    • Image credit: Paul Hoppe
    • Non-deductible contributions to Traditional IRAs can be made by taxpayers of any income
    • Traditional IRAs can be converted to Roth IRAs by taxpayers of any income
  51. Backdoor Roth IRAs: Process

    Slide 55 - Backdoor Roth IRAs: Process

    • Open a Traditional IRA at an investment brokerage like Vanguard or Fidelity
    • Make a non-tax-deductible contribution to a Traditional IRA up to your contribution limit
    • Convert to Roth your entire Traditional IRA
    • At tax time, pay tax on any gains made between Steps 2 and 3 (minimized by doing Step 3 shortly after Step 2)
    • For taxpayers with income too high for deductible IRAs
    • 2014
    • < Age 50
    • >= Age 50
    • Traditional IRA
    • $5,500
    • $6,500
    • Image credit: Paul Hoppe
    • You now have $5,500-$6,500 more in a Roth IRA, which will grow tax-free and can be withdrawn tax-free in retirement!
  52. Backdoor Roth IRAs

    Slide 56 - Backdoor Roth IRAs

    • For taxpayers with income too high for deductible IRAs
  53. Example

    Slide 57 - Example

    • Backdoor Roth IRAs: Caution!
    • Over the past years, you have amassed a $20,000 Traditional IRA at Fidelity
    • Today, you make a non-deductible (after tax) contribution of $5,000 to a Traditional IRA at Vanguard as step 2 of your Backdoor Roth IRA creation
    • You tell Vanguard that you wish to convert your Traditional IRA to Roth
    • To the IRS, this conversion is effective for all your Traditional IRAs, including the $20,000 in your Fidelity Traditional IRA: the IRS treats both your Traditional IRAs as one package of $25,000, where:
    • 20% ($5,000 / $25,000) are after-tax
    • 80% ($20,000 / $25,000) are not-yet-taxed
    • So $5,000 (the 20% after tax) has no taxes due, but the $20,000 (the 80% not-yet-taxed money) has taxes due since you’ve converted it to Roth!
    • For taxpayers with income too high for deductible IRAs
  54. Getting Around Roth IRA Contribution Limits

    Slide 58 - Getting Around Roth IRA Contribution Limits

    • For taxpayers with income too high for deductible IRAs
    • Backdoor Conduit
    • Maximum Funneled
    • Final Account
    • Backdoor Roth IRA
    • Non-Deductible Traditional IRA
    • Roth IRA
    • Mega Backdoor Roths
    • After-Tax 401(k) Contributions
    • $20,000
    • Roth IRA
    • or
    • Roth 401(k)
    • < Age 50
    • >= Age 50
    • $5,500
    • $6,500
  55. Mega Backdoor Roths

    Slide 59 - Mega Backdoor Roths

    • For employees whose employer provides them
    • For more information, see http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Contributions
    • and http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-401k-and-Profit-Sharing-Plan-Contribution-Limits
    • Employer Non-Elective
    • Employer 401(k) contribution matching
    • Catch-Up
    • Additional contributions allowed for older employees
    • After-Tax
    • Non-deductible contributions made from post-tax dollars that are investable in 401(k) fund options but have no tax benefit
    • Elective Deferral
    • Contributions to Traditional and Roth
    • $57,500
    • $17,500
    • $5,500
    • 2014
    • < Age 50
    • ≥ Age 50
    • Traditional EPRP
    • $17,500
    • $23,000
    • Roth EPRP
    • $17,500
    • $23,000
    • $34,500
    • Microsoft: $20,000
  56. Traditional or Roth 401(k)

    Slide 60 - Traditional or Roth 401(k)

    • Mega Backdoor Roths: Usage
    • For employees whose employer provides them
    • After-Tax 401(k)
    • Up to $17,500 per year
    • $20,000+
    • Up to $20,000 per year
    • In-service Rollover
    • Roth 401(k)
    • Roth IRA
    • or
    • Gains
    • You now have up to $20,000 more in a Roth retirement account, which will grow tax-free and can be withdrawn tax-free in retirement!
    • 1. Optional: Contribute the maximum $17,500
    • to Traditional
    • and/or Roth 401(k) to first reap those tax benefits
    • 2. Make after-tax 401(k) contributions up to Microsoft’s maximum of $20,000
    • 3. Call Fidelity to do an
    • in-service rollover
    • of Step 2’s after-tax 401(k) contribution to your choice of a Roth 401(k) or to a Roth IRA
    • 4. Pays tax on any
    • gains made between Steps 2 and 3
    • (which are minimized by doing Step 3 shortly after Step 2)
  57. Mega Backdoor Roths: Notes

    Slide 61 - Mega Backdoor Roths: Notes

    • For employees whose employer provides them
  58. Getting Around Roth IRA Contribution Limits

    Slide 62 - Getting Around Roth IRA Contribution Limits

    • For taxpayers with income too high for deductible IRAs
    • Backdoor Conduit
    • Maximum Funneled
    • Final Account
    • Backdoor Roth IRA
    • Non-Deductible Traditional IRA
    • Roth IRA
    • Mega Backdoor Roths
    • After-Tax 401(k) Contributions
    • $20,000
    • Roth IRA
    • or
    • Roth 401(k)
    • < Age 50
    • >= Age 50
    • $5,500
    • $6,500
  59. Medical Expenses FSA

    Slide 64 - Medical Expenses FSA

    • Dependent Care Expenses FSA
    • FSAs: Flexible Spending Accounts
    • For employees whose employer provides them
    • FSA
    • Contributions:
    • Per paycheck
    • Deducted from taxable income
    • Withdrawals:
    • Available for qualified expenses
    • Funds:
    • A maximum of $500 rolls over year to year
    • Are not investable
  60. FSA Example Usage

    Slide 65 - FSA Example Usage

    • For employees whose employer provides them
    • 1. Sign up with Microsoft Benefits to have an FSA for the calendar year
    • 2. Tell Microsoft the amount of your paycheck to contribute to the FSA per pay period
    • 3. Spend money on a qualified expense
    • 4. Seek reimbursement from your FSA, or use a special FSA debit card to pay
  61. FSA Contribution Limits

    Slide 66 - FSA Contribution Limits

    • Per Employee (Not Per Household)
    • 2014
    • $2,500
    • 2015
    • $2,500
    • For employees whose employer provides them
  62. HSAs: Health Savings Accounts

    Slide 67 - HSAs: Health Savings Accounts

    • For employees whose employer provides them
    • HSA
    • Contributions:
    • Lump sum or per paycheck
    • Deducted from taxable income for Federal and many states, but not CA!
    • Contributed to by Microsoft 2x/year
    • Withdrawals:
    • Qualified medical expenses from any time are tax-free and penalty-free
    • Withdrawals of any kind are penalty-free at retirement age
    • Funds:
    • Roll over year to year
    • Investable in options provided by HSA administrator
  63. HSA Contribution Limits

    Slide 68 - HSA Contribution Limits

    • Employee + Employer Contributions
    • Single
    • Family
    • Additional Catch-Up For Age ≥ 55
    • 2014
    • $3,300
    • $6,550
    • $1,000
    • 2015
    • $3,350
    • $6,650
    • $1,000
    • For employees whose employer provides them
  64. HSA Example Usage: Basic

    Slide 69 - HSA Example Usage: Basic

    • For employees whose employer provides them
    • 1. Sign up with Microsoft Benefits to have an HSA
    • 2. Tell Microsoft the amount of your paycheck to contribute per pay period or as a lump sum
    • 3. Spend money on a qualified medical expense
    • 4. Get reimbursed from your HSA, or use a special HSA debit card to pay
  65. Health Savings Accounts (HSA)

    Slide 70 - Health Savings Accounts (HSA)

    • HSAs have the best characteristics from FSAs and traditional IRAs:
    • FSA
    • HSA
    • Traditional IRA
    • Contributions
    • Not taxed
    • Not taxed
    • Not taxed
    • Contributions are tax-deductible no matter your income?
    • Yes
    • Yes
    • No
    • Growth (cap gains + dividends)
    • N/A
    • Not taxed
    • Not taxed
    • Withdrawals before retirement
    • For qualified expenses: not taxed nor penalized
    • For qualified medical expenses: Not taxed or penalized
    • Penalized
    • For non-qualified medical expenses: Taxed and penalized
    • Withdrawals after retirement
    • N/A
    • For qualified medical expenses: Not taxed
    • Taxed
    • For non-qualified medical expenses: Taxed
    • Withdrawal time limit
    • Calendar year
    • None
    • None
    • Money rolled over year to year?
    • No
    • Yes
    • Yes
    • Money is invested by employee?
    • No
    • Yes
    • Yes
    • For employees whose employer provides them
  66. HSA Example Usage: Tax Advantage

    Slide 71 - HSA Example Usage: Tax Advantage

    • For employees whose employer provides them
    • 1. Sign up with Microsoft Benefits to have an HSA
    • 2. Tell Microsoft the amount of your paycheck to contribute to the HSA per pay period
    • 3. Pay for medical expenses out of pocket, not using HSA money
    • 4. Allow your investments in the HSA to grow tax free
    • 5. In retirement, after years of tax-free growth:
    • Eliminate taxes: Continue to use HSA money tax free for qualified medical expenses, or
    • Defer taxes: Withdraw the HSA money taxed at ordinary income (like a traditional IRA) for non-qualified medical expenses
  67. Small Early Savers Beat Big Late Savers

    Slide 72 - Small Early Savers Beat Big Late Savers

    • Small Early Saver
    • Big Late Saver
    • Annual Investment
    • $2,000
    • $4,000
    • Total Years Invested
    • 40
    • 25
    • Total Contributed
    • $80,000
    • $100,000
    • Total Interest Earned
    • $250,000
    • $137,000
    • Total Portfolio
    • $330,000
    • $237,000
    • 40% more saved
    • 40% more saved by contributing 20% less
  68. Tax Loss Harvesting

    Slide 74 - Tax Loss Harvesting

    • Sell fund A at a loss
    • Immediately buy a fund B that is similar but not identical to fund A
    • Why would anyone do this?
    • For taxpayers with a taxable account
    • Fund A
    • Fund B
    • Capital loss
  69. Tax Loss Harvesting

    Slide 75 - Tax Loss Harvesting

    • Sell fund A at a loss
    • Wait more than 30 days
    • Rebuy fund A
    • For taxpayers with a taxable account
    • Fund A
    • 31 days
    • Fund A
    • Capital loss
  70. Tax Loss Harvesting: Example

    Slide 76 - Tax Loss Harvesting: Example

    • For taxpayers with a taxable account
    • 2008 Plan
    • In your taxable account, you have $100,000 invested in fund A
    • You plan to stay the course and keep your money invested similarly for years
    • The market falls and your investment in fund A is now worth $92,000
    • You sell fund A, booking an $8,000 long-term capital loss
    • You immediately buy $92,000 of fund B which is similar but not identical to fund A
    • 2008 Tax Return
    • In 2008, you also had a long-term capital gain of $1,000 from selling another mutual fund
    • You cancel out that $1,000 using $1,000 of your $8,000 loss; $7,000 loss remains
    • You deduct from your 2008 income the max $3,000 of your $7,000 remaining 2008 loss; $4,000 loss remains
    • 2009 Tax Year
    • In 2009, you also had long-term capital gains of $500 from selling another mutual fund
    • You cancel out that $500 using $500 of your remaining $4,000 2008 loss; $3,500 remains
    • You deduct from your 2009 income the max $3,000 of your remaining $3,500 2008 loss; $500 loss remains
    • 2010 Tax Year
    • You deduct from your 2010 income the remaining $500 of your 2008 long-term capital loss
    • This keeps you in the market and your asset allocation intact
    • 2008 Tax Loss Harvest
  71. Tax Loss Harvesting

    Slide 77 - Tax Loss Harvesting

    • For taxpayers with a taxable account
    • Stay in
    • the market
    • While maintaining your asset allocation
    • While reducing your tax bill
  72. Example

    Slide 78 - Example

    • Tax Loss Harvesting: Advanced Method
    • Being in the 35% ordinary income tax bracket, you have a 15% capital gains tax rate
    • This year, you booked capital gains of $3,000, so you will pay $3,000 * 15% = $450 in capital gains tax
    • You have a fund that is currently at a loss of $3,000 that you have not yet sold
    • Option 1: This year, tax loss harvest the fund to book a capital loss of $3,000, saving $450 in capital gains tax
    • Option 2: Wait until next year to tax loss harvest the fund
    • If the fund is still at a loss of $3,000, then you tax loss harvest to book the capital loss and deduct $3,000 from your ordinary income, which would have been taxed at 35% ($1,050)
    • If the fund has increased since last year, then you’ve made money back on your investment, which could more than offset the $450 in capital gains tax you paid
    • For taxpayers with a taxable account
  73. Tax Loss Harvesting: Tax Impact

    Slide 79 - Tax Loss Harvesting: Tax Impact

    • If you wait until retirement to sell your fund and you are in a lower tax bracket than when you tax loss harvested, you save in taxes
    • If you sell your fund when you are in a higher tax bracket than when you tax loss harvested (or tax rates go up), you pay more in taxes
    • If you do not sell your fund until your death, you eliminate taxes because your heirs receive the investments at a stepped up cost basis (the IRS considers the cost basis for an heir to be the value of the investment on the date of death of the deceased)
    • For taxpayers with a taxable account
  74. Tax Loss Harvesting: Caution

    Slide 80 - Tax Loss Harvesting: Caution

    • For taxpayers with a taxable account
    • Be careful when you tax loss harvest: If the fund you are tax loss harvesting into (fund B) is going to give qualified dividends within 61 days (taxed as capital gains), those qualified dividends will be considered non-qualified (taxed as ordinary income)
  75. Donating Appreciated Securities

    Slide 82 - Donating Appreciated Securities

    • For donating taxpayers with taxable capital gains
    • Appreciated Investments
    • Cash
    • Capital Gains Taxes
    • Charity
    • Sale
    • Dona-
    • tion
  76. Donating Appreciated Securities

    Slide 83 - Donating Appreciated Securities

    • For donating taxpayers with taxable capital gains
    • Appreciated Investments
    • Charity
    • Cash
    • Dona-tion
    • Sale
  77. Donating Appreciated Securities

    Slide 84 - Donating Appreciated Securities

    • In 2011, you bought mutual fund A for $5,000
    • In 2013, fund A is worth $9,000
    • In 2013, you donate your holdings of fund A directly to a charity
    • For tax year 2013
    • You deduct $9,000 from your income as a charitable contribution
    • You get Microsoft to match your $9,000 contribution
    • You owe no capital gains tax on your $4,000 capital gain
    • For donating taxpayers with taxable capital gains
  78. Slide 85

    • $x Appreciated Securities / Cash
    • Investment Style Recommendation
    • Donor-Advised Funds (DAF)
    • For donating taxpayers with taxable capital gains
    • Charitable Giving Receipt for $x
    • Growth of Investment to $x+
    • Charity Grant Recommendations
    • Charities
    • You (Advisor)
    • DAF
    • Cash Grants
    • Easy Management
    • Growth
    • Sell Investments to Fund Grants
  79. DAF Benefits

    Slide 86 - DAF Benefits

    • For donating taxpayers with taxable capital gains
    • Tax Savings
    • You can donate appreciated securities, which some charities may accept only with lots of paperwork or may not accept at all
    • Timed Giving
    • You can make a lump sum deductible contribution in one year (a high income year) and make grants over time after research
    • Small Gifts
    • Without a DAF, it can be hard to gift small amounts via appreciated securities
    • Growth
    • A donor's account value has the potential to increase over the years from investment, resulting in larger charitable grants
    • Generational Giving
    • You can set up your DAF with the ability to continue a gifting tradition by naming successor advisors
    • Paperwork Simplification
    • Paperwork is reduced since you are only donating to one charity organization: the DAF
    • Optional Anonymity
    • You can choose whether each grant is anonymous or not
    • Asset Hiding
    • Assets in a DAF are not counted as part of your assets in any way (for bankruptcy or college financial aid)
  80. DAF Strategies

    Slide 87 - DAF Strategies

    • Maintain Asset Allocation: You can donate your most-appreciated shares held for over 1 year to a DAF, then immediately buy the same amount back to maintain your asset allocation
    • Donate Quickly: DAFs charge a small fee for assets under management, so minimize this fee by making donations soon after contribution to the DAF
    • Hide Assets: Assets in a DAF are not counted as part of your assets in any way (for bankruptcy or college financial aid)
    • Low-Cost, Low-Minimums: Choose a DAF provider like Fidelity or Vanguard, who have low fees, low minimums to open the DAF, and low grant minimums for small gifts
    • For donating taxpayers with taxable capital gains
  81. Mar

    Slide 89 - Mar

    • Paycheck
    • Contribution
    • $100
    • Paycheck
    • Contribution
    • $100
    • Jan
    • ESPP Basics
    • Paycheck
    • Contribution
    • $100
    • On the last day of the quarter, Fidelity totals your contributions from that quarter ($100 x 6 = $600)
    • It uses that to buy MSFT shares at 90% of its closing market price on that day ($40 * 90% = $36)
    • Fidelity then deposits the shares into your taxable brokerage account ($600 / $36 = 16.67 shares deposited)
    • Paycheck
    • Contribution
    • $100
    • $40
    • Begin price = price of an MSFT share at beginning of 3-month ESPP period
    • Purchase price = 90% of end price
    • Sale price = market price of an MSFT share when you sold it
    • Feb
    • Paycheck
    • Contribution
    • $100
    • Paycheck
    • Contribution
    • $100
    • MSFT Stock Price
    • End price = price of an MSFT share at end of 3-month ESPP period
    • $35
  82. ESPP Rate of Return

    Slide 90 - ESPP Rate of Return

    • Assuming you are able to sell your stock immediately at the market price the second you acquire them, what is the rate of return for the ESPP?
    • Contribute $600 to ESPP which will be used to buy stock at the end of the quarter
    • At quarter end, MSFT is $40/share, so MSFT is purchased at $40 * 90% = $36
    • The original investment of $600 can thus buy 16.67 shares
    • Sell the 16.67 shares immediately, when the market price is still $40/share
    • You receive a return of $666.67
    • ESPP’s rate of return = return / original investment = $666.67 / $600 = 11.1%
  83. ESPP Taxation

    Slide 91 - ESPP Taxation

    • Favorable tax treatment
    • Less favorable tax treatment
    • If you held the shares for ≥ 21 months from purchase date, you have a
    • qualifying disposition
    • If you held the shares for < 21 months from purchase date, you have a
    • disqualifying disposition
  84. ESPP Taxation: Qualifying Disposition

    Slide 92 - ESPP Taxation: Qualifying Disposition

    • Favorable tax treatment
    • Less favorable tax treatment
    • Ordinary Income = min(10% of Begin Price, Sale Price – Purchase Price)
    • Long Term Capital Gain/Loss = Sale Price – Purchase Price + Ordinary Income
    • Problem: Microsoft does not report this ordinary income on your W-2!
    • You are responsible for reporting this in the tax year that you dispose of the shares
    • If you held the shares for ≥ 21 months from purchase date, you have a
    • qualifying disposition
    • If you held the shares for < 21 months from purchase date, you have a
    • disqualifying disposition
  85. ESPP Taxation: Disqualifying Disposition

    Slide 93 - ESPP Taxation: Disqualifying Disposition

    • Favorable tax treatment
    • Less favorable tax treatment
    • Ordinary Income = 10% of End Price
    • Capital Gain/Loss = Sale Price - End Price (LT if held for ≥ 12 months, else ST)
    • Microsoft does report this ordinary income on your W-2! This means you’ve already paid tax at ordinary income for this via withholdings!
    • Problem: Fidelity reports your ESPP sale with a cost basis of the purchase price!
    • If you held the shares for ≥ 21 months from purchase date, you have a
    • qualifying disposition
    • If you held the shares for < 21 months from purchase date, you have a
    • disqualifying disposition
  86. ESPP Taxation: Disqualifying Disposition

    Slide 94 - ESPP Taxation: Disqualifying Disposition

    • End Price = Sale Price
    • $100
    • 10% ESPP Discount
    • $10
    • Purchase Price
    • $90
    • Microsoft reports this as ordinary income
    • Capital Gain = Sale Price – Cost Basis
    • Microsoft does report this ordinary income on your W-2! This means you’ve already paid tax at ordinary income for this via withholdings!
    • Problem: Fidelity reports your ESPP sale with a cost basis of the purchase price!
  87. ESPP Taxation: Disqualifying Disposition

    Slide 95 - ESPP Taxation: Disqualifying Disposition

    • Afterward, you'll see that your tax liability is reduced due to the correcting of the double taxation
    • 1. Receive Form 1099 from Fidelity which contains the incorrect tax bases
    • 4. Use Form 1099 to input missing information about the ESPP sales (TurboTax will prompt you that it’s missing some information)
    • 3. Import or input your stock transactions from Fidelity into TurboTax
    • 2. Receive Form 3922 from Fidelity which contains ESPP transaction information
    • 5. Click “Add more info” next to each ESPP transaction in TurboTax’s stock transaction list and follow the wizard to input ESPP-specific information from Form 3922
  88. End Price > Begin Price; Sale Price > End Price

    Slide 96 - End Price > Begin Price; Sale Price > End Price

    • Begin Price: $100
    • End Price: $110
    • Purchase Price: $99
    • Sale Price: $150
    • Total Gain: $51
    • Qualifying Sale
    • Shares sold ≥ 21 months from purchase date
    • Ordinary Income
    • = min(10% of Begin Price, Sale Price – Purchase Price)
    • = min($10, $150 – $99)
    • = $10
    • Capital Gain (LT if held for ≥ 12 months, else ST)
    • = Sale Price – Purchase Price + Ordinary Income
    • = $150 – $99 + $10
    • = $41
    • Disqualifying Sale
    • Shares sold < 21 months from purchase date
    • Ordinary Income
    • = 10% of End Price
    • = $11
    • Capital Gain (LT if held for ≥ 12 months, else ST)
    • = Sale Price – End Price
    • = $150 – $110
    • = $40
  89. End Price > Begin Price; Sale Price < End Price

    Slide 97 - End Price > Begin Price; Sale Price < End Price

    • Begin Price: $100
    • End Price: $110
    • Purchase Price: $99
    • Sale Price: $95
    • Total Loss: $4 loss
    • Qualifying Sale
    • Shares sold ≥ 21 months from purchase date
    • Ordinary Income
    • = min(10% of Begin Price, Sale Price – Purchase Price)
    • = min($10, $95 – $99)
    • = $0 (floor)
    • Capital Loss (LT if held for ≥ 12 months, else ST)
    • = Sale Price – Purchase Price + Ordinary Income
    • = $95 – $99 + $0
    • = $4 loss
    • Disqualifying Sale
    • Shares sold < 21 months from purchase date
    • Ordinary Income
    • = 10% of End Price
    • = $11
    • Capital Loss (LT if held for ≥ 12 months, else ST)
    • = Sale Price – End Price
    • = $95 – $110
    • = $15 loss
  90. End Price < Begin Price; Sale Price > End Price

    Slide 98 - End Price < Begin Price; Sale Price > End Price

    • Begin Price: $110
    • End Price: $100
    • Purchase Price: $90
    • Sale Price: $150
    • Total Gain: $60
    • Qualifying Sale
    • Shares sold ≥ 21 months from purchase date
    • Ordinary Income
    • = min(10% of Begin Price, Sale Price – Purchase Price)
    • = min ($11, $150 - $90)
    • = $11
    • Capital Gain (LT if held for ≥ 12 months, else ST)
    • = Sale Price – Purchase Price + Ordinary Income
    • = $150 - $90 + 11
    • = $49
    • Disqualifying Sale
    • Shares sold < 21 months from purchase date
    • Ordinary Income
    • = 10% of End Price
    • = $10
    • Capital Gain (LT if held for ≥ 12 months, else ST)
    • = Sale Price – End Price
    • = $150 - $100
    • = $50
  91. End Price < Begin Price; Sale Price < End Price

    Slide 99 - End Price < Begin Price; Sale Price < End Price

    • Begin Price: $110
    • End Price: $100
    • Purchase Price: $90
    • Sale Price: $95
    • Total Gain: $5
    • Qualifying Sale
    • Shares sold ≥ 21 months from purchase date
    • Ordinary Income
    • = min(10% of Begin Price, Sale Price – Purchase Price)
    • = min($11, $5)
    • = $5
    • Capital Gain (LT if held for ≥ 12 months, else ST)
    • = Sale Price – Purchase Price + Ordinary Income
    • = $95 - $90 + $5
    • = $0
    • Disqualifying Sale
    • Shares sold < 21 months from purchase date
    • Ordinary Income
    • = 10% of End Price
    • = $10
    • Capital Loss (LT if held for ≥ 12 months, else ST)
    • = Sale Price – End Price
    • = $95 - $100
    • = $5 loss
  92. ESPP Advice

    Slide 100 - ESPP Advice

    • Take full advantage of ESPP
    • Don’t own Microsoft Stock
  93. Note: Paying Off Debt is an Investment

    Slide 102 - Note: Paying Off Debt is an Investment

    • Before talking about prioritizing where your money goes, it is important to note that paying off debt is also an investment:
    • For a credit card that charges 15% interest, every dollar you use to pay down that balance gets you a 15% rate of return!
    • This is equivalent to an investment that returns 15% (which is an amazing investment, since savings accounts are paying ~1% interest in 2012)!
    • equal returns
  94. Prioritize Where Your Money Goes

    Slide 103 - Prioritize Where Your Money Goes

    • Money not used for expenses or your emergency fund should be used to invest or pay down loans
    • Put your money in the investment option with the highest expected rate of return
    • If you can put no more money in that option, move to the next best option
    • Here is a typical priority order for where to put your money (start at the left and go right):
    • 50% to 100%
    • Rate of return
    • 10%
    • to
    • 30%
    • 5%
    • to
    • 8%
    • 5%+ Tax Free
    • 4%+
    • 0%
    • to
    • 3%
    • 1%
    • +
    • Peace of Mind
    • 5%+ w/ Tax Advantages
    • 4%+ w/ Tax Advantages
    • Save for your retirement before your child’s education
    • 4%+
    • Pay down credit cards
    • Pay down non-deductible auto, EDU, etc. loans
    • Max 401(k) w/ low-cost options
    • Pay down subsidized loans
    • Fill emergency fund
    • Max 401(k) employer match
    • Max HSA
    • Max Traditional / Roth IRA
    • Max Mega Backdoor Roth
    • Pay down deductible mortgage / EDU loans
    • Taxable investments
    • Max a 401(k) w/ high-cost options
    • Contribute
    • to 529s
  95. Prioritize Where Your Money Goes

    Slide 104 - Prioritize Where Your Money Goes

    • 50% to 100%
    • Rate of return
    • 10%
    • to
    • 30%
    • 5%
    • to
    • 8%
    • 5%+ Tax Free
    • 4%+
    • 0%
    • to
    • 3%
    • 1%
    • +
    • Peace of Mind
    • 5%+ w/ Tax Advantages
    • 4%+ w/ Tax Advantages
    • Save for your retirement before child EDU
    • 4%+
    • 11%
    • Insert here
    • Use your 10% discount ESPP and sell immediately
    • Pay down credit cards
    • Pay down non-deductible auto, EDU, etc. loans
    • Max 401(k) w/ low-cost options
    • Pay down subsidized loans
    • Fill emergency fund
    • Max 401(k) employer match
    • Max HSA
    • Max Traditional / Roth IRA
    • Max Mega Backdoor Roth
    • Pay down deductible mortgage / EDU loans
    • Taxable investments
    • Max a 401(k) w/ high-cost options
    • Contribute
    • to 529s
  96. What Investments Should I Buy?

    Slide 105 - What Investments Should I Buy?

    • Don’t try to beat the market, ride the market
    • Don’t try to time the market, maximize your time in the market
    • Buy cheap (< 0.25% ER), widely-diversified investments
    • Indexed mutual funds
    • Target retirement funds
  97. Target Retirement Funds

    Slide 106 - Target Retirement Funds

    • A target retirement fund is a mutual fund of mutual funds!
    • Instead of acting as a basket of stocks, it acts as a basket of funds
    • The target fund becomes more conservative over time to match the decreasing risk tolerance of investors as they get closer to retirement
    • Target funds usually have a stock index, an international index, and a bond index
    • Target funds become more conservative over time by buying more of the bond index and selling some of the stock and international index
    • A mutual fund company will have an array of target funds, each for different retirement ages:
    • Target Retirement 2060 (for investors who plan to retire in 2060)
    • Target Retirement 2055 (for investors who plan to retire in 2055)
    • Target retirement funds are:
    • Low cost
    • Hugely diversified (thousands of all major types of bonds and thousands of stocks representing almost every publicly traded company in the world!)
    • Stock Fund
    • Bond Fund
    • Int’l Fund
    • Holdings of the “Target Retirement 2040” target fund in 2020
    • Stock Fund
    • Bond Fund
    • Int’l Fund
    • Holdings of the “Target Retirement 2040” target fund in 2030
    • Stock Fund
    • Bond Fund
    • Int’l Fund
    • Holdings of the “Target Retirement 2040” target fund in 2040
  98. Insure Against Catastrophic Losses

    Slide 108 - Insure Against Catastrophic Losses

    • Liability is financial and legal responsibility for harm
    • Insurance is a way to reduce or eliminate financial loss from liability
    • Everyone should insure against financially catastrophic losses!
  99. Insurance Definitions

    Slide 109 - Insurance Definitions

    • Insurance is a way to reduce or eliminate a possible financial loss from liability and damage
    • The insured is the person buying insurance
    • The insurer sells insurance to the insured
    • The premium is the cost for insurance paid for a given period of coverage
    • The deductible is the maximum amount the insured must pay in the event of a loss before insurance coverage kicks in, levied by some policies
    • The insurance policy details the conditions under which the insured will be compensated
    • The settlement is the payment by the insurer to the beneficiary for a loss covered by the policy
    • The beneficiary is the person to whom the settlement is paid (usually same person as insured)
    • Settlement
    • Insurer
    • Insurance Company
    • $$$$
    • Insured
    • Premium
    • While covered by an insurance policy, the insured suffers a loss covered by the policy
    • $
    • Beneficiary
    • Deductible
    • $
  100. Umbrella Insurance

    Slide 110 - Umbrella Insurance

    • Umbrella insurance is additional liability coverage over and above the liability coverage from your homeowner’s and auto insurance
    • Some umbrella insurance policies cover other liabilities that homeowner’s and auto do not cover, like false arrest, libel, slander, invasion of privacy, etc.
    • Insurance companies usually require umbrella insurance purchasers to have a minimum amount liability coverage on their homeowner’s and auto insurance
    • Purchasing umbrella insurance is recommended because:
    • It is usually relatively cheap for the large amount of coverage it provides (~$150-300 per year for $1,000,000 of coverage on top of your homeowner’s and auto insurance)
    • It typically provides an unofficial benefit: insurance companies (who potentially would need to pay up to $1,000,000 to settle a lawsuit) are incented to hire very good lawyers to attempt to reduce or eliminate that settlement
  101. Example

    Slide 111 - Example

    • Example
    • Here are examples where umbrella insurance may cover your liability:
    • Here is a general example of how an umbrella insurance policy works:
    • Umbrella Insurance: Examples
    • You cause a car accident causing serious injuries to multiple people
    • You cause a car accident damaging a truck carrying $750,000 of cargo
    • An acquaintance gets seriously injured at your house
    • You are a chaperone on a field trip and one of the kids hurts themselves
    • You host a party, someone else brings alcohol, and someone underage gets hurt
    • Your son or daughter borrows a friend’s car and wrecks the car or injures someone
    • Your auto insurance
    • has $300,000 liability coverage and
    • $5,000 deductible
    • Your umbrella insurance
    • has $1,000,000 liability coverage and
    • $300,000 deductible
    • You are sued due to an auto accident and settle with the claimant for
    • $1,000,000
    • You
    • pay your auto insurance
    • $5,000 deductible
    • Your auto insurance
    • pays your umbrella insurance’s
    • $300,000 deductible
    • Your umbrella insurance
    • pays the full
    • $1,000,000
    • to the claimant
  102. Effective Liability Coverage

    Slide 112 - Effective Liability Coverage

    • Your effective liability coverage is a measure of how much liability coverage you have across all your insurance policies
    • It tells you the amount of liability coverage you have in a worst-case scenario: a lawsuit that hits you where you have the least coverage
    • Your effective liability coverage is the smaller between this:
    • Your homeowner’s insurance liability coverage
    • Your umbrella insurance liability coverage
    • +
    • Your auto insurance liability coverage
    • Your umbrella insurance liability coverage
    • +
    • And this:
  103. Example

    Slide 113 - Example

    • Example
    • Effective Liability Coverage
    • You have $100,000 total-per-incident bodily injury liability coverage via your auto insurance, but no homeowner’s nor umbrella
    • Your effective liability coverage is $0, the minimum between ($0 + $0) and ($100,000 + $0)
    • In the worst case, someone is hurt on your property and they sue you, but you have no homeowner’s insurance so you will be responsible for the entire judgment against you, court fees, etc.
    • You have $50,000 liability coverage through your homeowner’s insurance
    • You have $300,000 total-per-incident bodily injury liability coverage through your auto insurance
    • You have $0 umbrella coverage because you have no umbrella insurance
    • Your effective liability coverage is $50,000, the minimum between ($50,000 + $0) and ($300,000 + $0)
    • In the worst case, someone is hurt on your property and they sue you, and your homeowner’s policy gives you $50,000 coverage
    • Your homeowner’s insurance liability coverage
    • Your umbrella insurance liability coverage
    • +
    • Your auto insurance liability coverage
    • Your umbrella insurance liability coverage
    • +
    • And this:
    • Your effective liability coverage is the smaller between this:
  104. Example

    Slide 114 - Example

    • How Much Liability Coverage Should I Own?
    • Everyone should aim to have effective liability coverage of at least $1,000,000
    • Even if your net worth is less than $1,000,000, you can still have a successful lawsuit made against you with a judgment of more than your net worth, which means your future earnings would be garnered
    • Being insured for over $1,000,000 may not cover all judgments against you, but having that insurance motivates your insurance company to hire good lawyers for your defense to avoid paying out that $1,000,000
    • If you have a high net worth, aim to have an effective liability coverage of $2,000,000 or more
    • If you cannot afford to get the suggested amount of effective liability coverage, start with what you can afford and increase it over time
    • Your homeowner’s insurance liability coverage
    • Your umbrella insurance liability coverage
    • +
    • Your auto insurance liability coverage
    • Your umbrella insurance liability coverage
    • +
    • $50,000
    • $100,000/$300,000
    • $1,000,000
    • $1,000,000
    • Effective Liability Coverage = $1,050,000
  105. Tax-Efficient Fund Placement

    Slide 116 - Tax-Efficient Fund Placement

    • Different types of mutual funds/ETFs have different tax characteristics:
    • Bond index funds generate most of its returns as non-qualified dividends, which are taxed as ordinary income (this is an example of a tax-inefficient fund)
    • Stock index funds generate the bulk of its returns as appreciation, with a small amount in dividends and capital gains due to selling of stocks to maintain holdings that match the index it tracks (this is an example of a tax-efficient fund)
    • Actively managed stock funds generally generate more capital gains than index funds because managers frequently sell stocks with gains to capture returns
    • Tax-managed funds (funds that minimize taxes by allowing their holdings to deviate from the index they track) are designed to minimize capital gains
    • For taxpayers with a taxable account
  106. Tax-Efficient Fund Placement

    Slide 117 - Tax-Efficient Fund Placement

    • Tax-Efficient
    • Low-yield money market, cash, short-term bond funds
    • Tax-managed stock funds
    • Large-cap and total-market stock index funds
    • Balanced index funds
    • Small-cap or mid-cap index funds
    • Value index funds
    • Moderately tax-inefficient
    • Moderate-yield money market, bond funds
    • Total-market bond funds
    • Active stock funds
    • Very tax-inefficient
    • Real estate or REIT funds
    • High-turnover active funds
    • High-yield corporate bonds
    • For taxpayers with a taxable account
  107. Tax-Efficient Fund Placement

    Slide 118 - Tax-Efficient Fund Placement

    • Different types of investment accounts have different tax characteristics:
    • Funds held in a tax-advantaged retirement accounts are not charged taxes on dividends nor capital gains
    • Funds held in a taxable investment account (like a brokerage account) are charged taxes on dividends and capital gains
    • For taxpayers with a taxable account
  108. Tax-Efficient Fund Placement

    Slide 119 - Tax-Efficient Fund Placement

    • Minimize taxes by investing in index funds
    • Index funds are more tax-efficient than actively managed funds because of lower turnover
    • Minimize taxes by placing tax-inefficient funds in tax-advantaged accounts and tax-efficient funds in taxable accounts
    • Note that if you only have tax-advantaged accounts, you gain almost no tax benefits by changing fund placements between accounts
    • Tax-Efficient
    • Low-yield money market, cash, short-term bond funds
    • Tax-managed stock funds
    • Large-cap and total-market stock index funds
    • Balanced index funds
    • Small-cap or mid-cap index funds
    • Value index funds
    • Moderately tax-inefficient
    • Moderate-yield money market, bond funds
    • Total-market bond funds
    • Active stock funds
    • Very tax-inefficient
    • Real estate or REIT funds
    • High-turnover active funds
    • High-yield corporate bonds
    • For taxpayers with a taxable account
  109. Tax-Efficient Fund Placement

    Slide 120 - Tax-Efficient Fund Placement

    • For taxpayers with a taxable account
    • Are all your investments in tax-advantaged accounts?
    • Are you contributing the maximum to all tax-advantaged accounts available to you?
    • Consider contributing the maximum to all tax-advantaged accounts available to you, then start a taxable account
    • You don’t need to take into account tax-efficient fund placement
    • 1. Fill your tax-advantaged accounts with your least efficient funds
    • 2. Place international stock funds into your taxable account to get a US tax credit for foreign taxes paid by the international fund
    • 3. Place high-growth stock funds into Roth accounts since they have no required minimum distributions in retirement and their income is not counted for making Social Security taxable
    • 4. Place tax-efficient funds anywhere
    • Yes
    • No
    • No
    • Yes
    • Start
  110. For more information on…

    Slide 122 - For more information on…

    • The following slides are samples from a more comprehensive deck I made on the basics of personal finances
    • It gives a preview of what you can find in the deck, available on my personal website, www.ben61a.com
  111. Illiquid Savings

    Slide 123 - Illiquid Savings

    • Not quickly accessible
    • 401(k) withdrawal penalized
    • House must be sold
    • Liquid Savings
    • Quickly accessible
    • Periodic Savings
    • Accessible ~quarterly
    • Lost To Others
    • Equity: $1,000
    • Interest: $1,000
    • 1. Understand Your Monthly Balance Sheet
    • Your traditional 401(k): $1,000
    • Spouse’s traditional 401(k): $1,000
    • Employee Stock Purchase Program: $500
    • Mortgage: $2,000
    • Household and Other Expenses: $2,000
    • Savings: $1,000
    • Tax Withholding: $2,000
    • Income
    • $9,500
    • Your Salary
    • $4,000
    • Spouse’s Salary $5,000
    • Other Income
    • $500
  112. Auto Insurance Coverage Options

    Slide 124 - Auto Insurance Coverage Options

    • Covers
    • Notes and Coverage Guidance
    • Liability
    • Bodily Injury Liability
    • Judgments, defense costs, etc. you incur from someone suing you due to your car causing bodily injury/property damage
    • Bodily injury liability is usually sold with a per-person/per-loss maximum amount; for example, $100,000 / $300,000 limits mean you are covered for up to $100,000 per person involved in the incident with a total $300,000 maximum for a given incident
    • Bodily injury and property damage liability are usually sold together; e.g., $100,000 / $300,000 bodily injury limits may be sold with $100,000 property damage limits
    • A minimum coverage is usually required by state law, but you may (and usually should) buy a higher coverage
    • Start at $50,000 / $100,000; as your net worth increases, or as you are able to afford higher limits, you can consider increasing them to upwards of $300,000 / $500,000
    • Property Damage Liability
    • Damage
    • Bodily Injury from Underinsured / Uninsured Motorist
    • Lost wages, medical expenses, etc. you incur from an accident with a motorist who doesn’t have any (uninsured) or enough liability insurance (underinsured)
    • Like bodily injury liability, this is usually sold with a per-person/per-loss maximum amount
    • Whereas property damage liability covers the tens or hundreds of thousands, this usually only covers in the thousands
    • Property Damage from Underinsured / Uninsured Motorist
    • Collision
    • Damage to your car as a result of collision
    • These two coverage options are generally only recommended for cars less than 10 years old (since cars older than 10 years generally have little value to protect)
    • Comprehensive
    • Damage to your car from most causes outside collision (theft, fire, vandalism, etc.)
    • Various Other
    • Miscellaneous events like rental car reimbursement, roadside assistance, etc.
    • In general, none of these are worthwhile for the cost
  113. Determine Your Risk Tolerance

    Slide 125 - Determine Your Risk Tolerance

    • Your risk tolerance is based on many factors, including:
    • Personality and upbringing
    • Current circumstances
    • Expected future circumstances
    • Use the tables below to gauge your risk tolerance:
    • Low: Willing to take little risk Medium: Willing to take some risk High: Willing to take risk
    • Your Risk Tolerance Goes Down If:
    • You are saving for an upcoming large purchase (e.g., a house)
    • You have or expect children
    • You have major medical conditions
    • Your strongly prefer no loss of principal even in a bad market
    • Your Risk Tolerance Goes Up If:
    • You have a lot of cash on hand
    • You have adequate insurance of all types
    • You expect a large inheritance
    • You are willing to forgo/have a late retirement
    • You have a means of income that will likely be stable in retirement
    • You can handle a loss of 20%+ to your investments in a bad market
  114. Stock Example

    Slide 126 - Stock Example

    • A share of COKE was worth $62.56 in Sep 2013 and $74.60 in Sep 2014
    • During that year, COKE gave a dividend payment of 25¢ once a quarter
    • After that year, an owner of one share of COKE:
    • Had an unrealized gain of $74.60 - $62.56 = $12.02 through appreciation
    • Had received 4 payments of 25¢ = $1 through dividends
    • So, simply viewing a chart of stock value over time only tells you one part of the profit you could have made; you must also account for profit from dividends
    • COKE
    • Coca-Cola Bottling Co.
    • Your Portfolio
    • Appreciation
    • Dividends
    • http://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1412110639236&chddm=98532&chls=IntervalBasedLine&q=NASDAQ:COKE&ntsp=0&ei=KBkrVICyGernigLRrYHoDw
  115. Example

    Slide 127 - Example

    • What are Bonds?
    • A bond is a loan to some entity for some term at some interest rate
    • Here is an example of a bond:
    • Ben buys a $1,000 20-year bond from the US government
    • The bond is a loan of $1,000 that Ben gave to the US government, for which he shall receive repayment with interest after 20 years
    • Bonds can be bought from different places:
    • US government / Treasury bonds are issued by the US government
    • Agency bonds are issued by government agencies like Ginnie Mae, Freddie Mac, and Fannie Mae
    • Treasury-Inflation Protected Securities (TIPS) are issued by the US government that protect the lender from losing value due to inflation
    • Municipal bonds are issued by states and localities (interest from these bonds are usually exempt from income taxes)
    • Corporate bonds are issued by corporations
    • Bonds can have different terms:
    • Short-term bonds mature in <5 years
    • Intermediate-term bonds mature in 5-10 years
    • Long-term bonds mature in >10 years
    • Term
    • $$$$
    • $$$
    • Your
    • Portfolio
    • Now
    • Later
    • US Government
  116. What are Mutual Funds?

    Slide 128 - What are Mutual Funds?

    • Each block below represents a different section of the global stock market
    • Each block can further be split into smaller blocks of market sub-sections
    • Indexes exist to measure each block (a given mutual fund only tracks a single block)
    • Two example stocks will be traced to show how they exist in different sections
    • Total US Stock Market
    • Every publicly traded US corporation
    • S&P 500
    • 500 large US corporations
    • Extended Market
    • Every publicly traded US corporation minus those in the S&P 500
    • Large Cap
    • Large US corporations
    • Mid Cap
    • Medium US corporations
    • Small Cap
    • Small US corporations
    • Total International Stock Market
    • Every publicly traded non-US corporation
    • Developed
    • Corporations in developed markets
    • Emerging
    • Corporations in emerging markets
    • Total World Stock Market
    • Every publicly traded corporation in the world
    • REIT
    • US corporations that specialize in owning real estate
    • L Cap Int’l
    • M
    • S
    • Dow
    • Microsoft (MSFT is a part of the Total World Stock Market, the Total US Stock Market, the Dow, the S&P 500, the group of all large US corporations, but is not a REIT
    • MSFT
    • CapLease exists in the total world stock market, the total US stock market, the Extended Market, the group of all small US corporations, and is a REIT
    • LSE
  117. Example

    Slide 129 - Example

    • How are CDs Used?
    • CDs are best used as a savings vehicle for money that must be available in full within a short amount of time (< 5 years—too short to safely invest in stocks)
    • CD laddering allows a good balance between access to your deposit and higher interest of longer-terms:
    • You want to hold $5,000 in CDs, so you buy:
    • CD 1 for $1,000 with a maturity of 1 year
    • CD 2 for $1,000 with a maturity of 2 years
    • CD 3 for $1,000 with a maturity of 3 years
    • CD 4 for $1,000 with a maturity of 4 years
    • CD 5 for $1,000 with a maturity of 5 years
    • When CD 1 matures, buy $1,000 5-year CD 6
    • When CD 2 matures, buy $1,000 5-year CD 7
    • Etc.
    • You can make the terms used in your CD ladder longer (for higher overall yields) or shorter (for more frequent access to your deposit)
    • CD 1
    • Time
    • CD 2
    • CD 3
    • CD 4
    • CD 5
    • CD 6
    • CD 7
    • CD 8
    • CD 9
    • CD 10
    • CD 11
    • CD 12
    • CD 13
    • CD 14
  118. And more…

    Slide 130 - And more…

    • www.ben61a.com
  119. The best time to plant a tree is twenty years ago…

    Slide 131 - The best time to plant a tree is twenty years ago…

    • The second-best time is today.