It might be time to Maximize your Intel SERPLUS Deferred Compensation Plan
Perhaps now more than ever, it makes sense to increase your deferral to the SERPLUS deferred compensation plan. The following chart compares current tax rates to the proposed tax rates by the new administration.
Though we are uncertain when the tax changes will be implemented, we do know that tax rates will increase. If taxes increase, your deferred compensation benefits may become even more important for your tax planning.
TAP INTO Significant Tax and Income Benefits
Deferred compensation plans provide an opportunity to receive less income today in order to pay less taxes on that income when received in the future. When making annual deferred compensation elections, you have the choice of a 5-year, 10-year, or lump sum payment at retirement (when employment with Intel ends). If you plan to retire at 62, you could elect to receive distributions for 10 years from your SERPLUS plan to stretch out your income and realize it in a lower tax bracket until age 72. With this plan, you have deferred compensation income providing for your first 10 years of retirement. In your early 70’s, social security and required IRA distributions will supplement your steady income stream, and eventually replace your deferred compensation income.
Spreading deferred compensation income out over 10 years allows you to take it in a lower tax bracket, like 21% for Federal and State combined or 24% combined after 2025. This tax deferral would provide for a tax reduction between 23% and 35%. In a hypothetical scenario, $50,000 contributed per year over 15 years would total $750,000 (without earnings computed). The income deferral could provide $172,500 in tax savings in a conservative example and $262,500 in savings in a more generous example. That is real money in your pocket rather than in the Federal and State governments.
In the peak earning years of your life, with your 401k maxed out and not providing enough tax deferral and future income, the SERPLUS deferred compensation plan is a great tool to help increase both.
Cash Flow Considerations AND SOLUTIONS
If you do participate in the plan, your current take-home pay will decrease. If cash flow becomes tight, there are opportunities within your employee benefits that could help provide the needed funds. It may be advisable to sell some company stock (ESPP, RSUs) to supplement your monthly income so that you can participate in the plan and defer income. Keep in mind, your election made in 2020 on salary is for the 2021 income year, whereas the bonus election is for the bonus paid in 2022. A portion of the bonus could be especially important to defer in 2022 considering the proposed tax changes.
Questions ABOUT YOUR INTEL BENEFITS?
If you have questions about making deferred compensation elections, please schedule a call.
