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Maximizing Your Intuit Retirement Benefits

Maximizing Your Intuit Retirement Benefits

April 26, 2023

Intuit offers a wide range of attractive benefits for its employees. Our team specializes in advising professionals how they can help maximize the benefits that retirement plans can provide. The more informed you are, the better equipped you will be to make the best decisions toward reaching your financial goals.

The information presented in this article is based on Intuit plan documents, IRS rules, and federal and state laws as of January 1st, 2023. It is possible that there have been changes since the time of publication.

Retirement Benefits- The 401k Plan

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The 401k is a key benefit for employees. The following factors should be taken into consideration when building your strategy.

Contributions

Intuit offers both a Traditional and Roth 401k. Deciding how much to allocate to each strategy depends on considerations such as your income, spending, taxes, goals, and how close you are to retirement.

Before making elections, make sure to know the updated 401k contribution limits established by the IRS. These generally increase each year.

For reference, the 2023 annual limit is $22,500. There is also a $7,500 catch-up contribution for those ages 50 and older. 

Company Match

Intuit matches your contributions based on the following guidelines:

  • $1.25 per $1 you contribute
  • Up to 6% of your salary
  • And up to a maximum of $10,000 per year

Consider the following three examples for an employee aged 50 or older with an annual salary of $200,000:

Example 3 demonstrates the client’s ability to contribute $30,000 due to the catch-up provision for those ages 50 and older.

As a reminder, you should aim to contribute to your 401k each pay period. You may miss Intuit’s full employer match if you reach the IRS contribution limit before the calendar year’s end.

Traditional 401k

Traditional 401ks are one of the most common investment vehicles in a benefits package. Contributions are made using pre-tax dollars. You save on your tax bill now and instead pay taxes when you begin withdrawing funds in the future.

For high-income earners, contributing to a 401k reduces taxable income and allows funds to grow tax-deferred until retirement.

The nature of systematic investing may encourage saving for retirement. With automatic contributions and investing, you are consistently saving for your future without having to take any steps manually.

Roth 401k

The Roth 401k differs from the Traditional 401k in that contributions are made with after-tax dollars. The key benefit here is that there are no taxes on future distributions. Both contributions and any investment growth are distributed tax-free during your retirement.

Since withdrawals are tax-free in retirement, the Roth can be helpful for those who expect to maintain a higher tax bracket in the future. During retirement, you might have pensions, Social Security retirement benefits, and large Required Minimum Distributions (RMDs) that lead to high-income levels even when you are no longer working.

It is difficult to accurately predict what tax rates will be in the future. Many believe changes in future tax legislation will lead to higher taxes, like increasing the top tax rates, dismissing favorable treatment for long-term capital gains, and repealing step-ups in basis.

For more on this topic, see our article Tax Attorney Foresees Higher Taxes to Accompany Inflation.

The following displays a hypothetical example of an Intuit employee who wants to contribute $20,000 this year to their 401k. They are deciding between using their Roth or Traditional account. The assumption is the investor will achieve an annualized 7% rate of return on their investment over a 20-year timeframe.

The 7% rate of return is used to demonstrate a hypothetical example. Not every investor will achieve the same investment performance.

The Traditional 401k saves $4,000 in taxes this year by reducing taxable income by the full amount of the contribution. However, even if the investor is in the same tax bracket during retirement, there is a larger lifetime tax bill ($15,400 vs $4,000) when compared to a Roth investment.

Investments

Within the 401k, Intuit offers its employees a specified list of investment options. Some investors may want to consider an expanded list of options by utilizing a self-directed brokerage account through Charles Schwab.

Schwab’s offering provides a wider variety of investment choices. This can be a valuable tool in allowing you to create a more specific and diversified portfolio that better matches your risk profile and financial goals.

Rollovers and In-Service Distributions

If you are no longer working with Intuit, you have the option to roll funds from your company accounts directly to an Individual Retirement Account (IRA) held by an outside custodian. Processing a 401k rollover allows for several possible benefits, including:

  • consolidation of your assets under the management of one preferred institution or financial advisor
  • the possibility of further expanding your options for investment
  • the most direct source of professional management

Similarly, if you are over the age of 59½ but are still working with Intuit, you have the option to initiate an In-Service Distribution. This offers all the benefits of an IRA rollover while still allowing for continued contributions and company matching in your 401k.

With a 401k rollover, you will want to make sure you are rolling funds into an account with the same tax status to make sure this is not a taxable event. An example would be rolling a Traditional 401k to a Traditional IRA.

IRA rollovers may not be the right fit for everyone, so it’s important to keep the following in mind:

  • For those with after-tax contributions in their 401k, there may be extra steps involved to avoid comingling of assets
  • There is less guidance from representatives of your benefits team as your account would no longer be associated with Intuit
  • Depending on your situation, the investment management and custodial fees may change

Non-Qualified Deferred Compensation Plan (NQDCP)- supplementing your 401k

Certain high-level executives have the option to participate in a Non-Qualified Deferred Compensation Plan (NQDCP). The benefits include additional tax deductions in contribution years and tax-deferred growth, all without being subject to the IRS’ maximum contribution limits (see the IRS website for more details).  Eligible employees are usually highly compensated and consider tax savings to be a high priority.

Each year, there is an enrollment period where participants choose deferral details. You can contribute a significant percentage of your salary to these plans. For those with the means to save beyond 401k limitations, this plan offers an additional vehicle for both retirement funding and tax savings.

During the enrollment period, executives also elect distribution details for the plan’s funds. In general, there is an option for one lump sum payment, or a series of payments spread out over a specified number of years. In most cases, this distribution will occur at the end of your tenure with Intuit.

Intuit has discretion on whether they will match a percentage of your contribution to the plan. These matching contributions are subject to a vesting schedule before they are released to you as a participating employee. This concept is similarly used in the Restricted Stock Unit (RSU) benefits package (more on this in the RSU section below). However, the vesting schedule for the NQDCP match is different from the RSU schedule.

Equity Compensation Benefits

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Restricted Stock Units (RSUs)

Companies like Intuit strive to reward and retain their top employees. Restricted Stock Units (RSUs) are bonuses provided to employees in the form of company stock. Because they are similar to a cash bonus, they are subject to ordinary income taxes.

The units are restricted by a specific vesting schedule- you are granted shares based on a timeframe decided by Intuit and throughout your tenure as an employee. If you leave the company, any unvested shares will be forfeited.

Upon vesting, the granted shares are considered taxable income. If you continue to hold the stock, any appreciation is also subject to capital gains taxes. If you decide to sell, a portion of your shares is usually withheld to pay the income taxes.

One of the biggest factors to consider with RSUs is the risk associated with holding concentrated stock positions in your portfolio. Intuit stock can provide desirable upside but also warrant careful consideration.

Here is a good question to ask yourself when receiving RSUs: if this were simply a cash bonus, would you use the entire amount to purchase company stock at the fair market value?

Having a disciplined strategy will allow you to capitalize on your bonus and diversify to avoid unnecessary risks in your portfolio.

To learn more about this topic, see our article Restricted Stock Divestiture on our website.

Employee Stock Purchase Plan (ESPP)

In the Employee Stock Purchase Plan (ESPP), participants can purchase Inuit stock at a discounted price. Your contributions accumulate in the plan until a specified purchase date. At that time, Intuit uses those funds to buy discounted shares on your behalf.

Intuit offers stock through their ESPP at a minimum of a 15% discount, with purchase dates every three months. The minimum is a result of the company’s lookback period, which ensures you are paying the lowest possible stock price during the available offering period.

It may help to look at a hypothetical situation:

  • An employee contributes $10,000 to their ESPP
  • At the end of the offering period, Intuit buys $10,000 worth of stock at a 15% discount
  • Because shares are bought at a 15% discount, the market value of the position is ~$11,765
  • The position is immediately sold, realizing an ~18% gain on the investment
  • Now, the investor takes the proceeds and reinvests in an appropriately allocated portfolio that achieves greater diversification

This chart details how this strategy results in an investor capturing an 18% return out of a 15% discount.

These plans can be more challenging to navigate. If you participate, you will need to consider the following: when to enroll, how much to contribute, when to sell, and how it will affect your taxes.

Tax treatment on ESPPs is complex and it is recommended that participants should work with a tax professional to help determine the tax consequences. As a guideline, investors are taxed most favorably if they hold shares for at least two years after the offering date and at least one year after the purchase date.

ESPPs are similar to RSUs in that the underlying asset within these accounts is Intuit stock. For both of these accounts, it is worth considering diversifying your portfolio.

Health Benefits

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Health Savings Accounts (HSAs)

We advise clients to choose the health plan that best suits their medical needs before considering any investment advantages.

A Health Savings Account (HSA) is an account designed to pay for qualified medical expenses. You can elect to make contributions through payroll and invest to allow the opportunity for growth over time. Since contributions are made with pre-tax dollars, this is another strategy that can reduce your current-year tax bill.

Unlike Flexible Spending Accounts (FSAs), the funds in your HSA roll over each year and can still be accessed even if you leave Intuit or are no longer covered under the Intuit Health Plan.

One of the main requirements for being eligible to participate is that you are enrolled in a High Deductible Health Plan (HDHP). For 2023, the IRS has determined that an annual deductible of $1,500 for an individual, or $3,000 for a family, qualifies.

HSAs are unique in that they are triple-tax-advantaged:

  • Contributions are tax-deductible now
  • Funds inside the plan grow tax-deferred
  • Distributions taken for qualified medical expenses are tax-free

Some prefer to view their HSA as a long-term investment vehicle, where they plan on using the funds to pay for medical expenses in retirement. They may see significant tax-free growth of the assets within the plan. This strategy can work well for those who have the cash available to pay for common medical expenses along the way.

One important factor to consider with HSAs is that any withdrawals taken before the age of 65 and not used for qualified medical expenses are subject to a 20% penalty and ordinary income taxes. After age 65, non-qualified withdrawals are treated as income with no penalty, similar to the treatment of your 401k and other tax-deferred retirement accounts.

HSAs add another layer of retirement savings. They work best when paired with a strategy that considers your entire financial picture.

Conclusion

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The Intuit benefits package offers substantial value and should be treated as a part of your total compensation. If you are taking an approach that is effective for your financial plan, you put yourself in a position to better achieve your goals.

The details and choices within the package can take considerable time to fully comprehend. It can also be challenging to balance each component in a way that focuses on maximizing your success throughout your career and into retirement.

At Pacific Wealth Management, our team uses experience and expertise to help our clients maximize their employer’s benefits. If you would like help considering your options with Intuit, or have any questions related to this topic, don’t hesitate to reach out to our team at contactus@pacwealth.com.

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