Qualcomm offers a wide range of attractive benefits for its employees. Our team specializes in advising professionals as to how they may maximize the benefits that retirement plans can provide. The more informed you are about the options in your plan, 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 Qualcomm plan documents, IRS rules, and federal and state laws as of October 10th, 2022. It is possible that there have been changes since the time of publication.
Retirement Benefits- The 401k Plan
The 401k is a key benefit for most employees. The following factors should be taken into consideration when building your most appropriate strategy.
Qualcomm 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 2022 annual limit is $20,500. There is also a $6,500 catch-up contribution for those over 50.
Qualcomm uses the following formula for matching employee contributions:
- 100% on the first $1,500
- 50% on the next $1,500
- 33% on the next $7,500
- 10% thereafter up to the IRS limit
The only way to take full advantage of the company match is by maxing out your annual contributions. Qualcomm is offering to add $5,750 per year to your retirement account, or $6,400 for those over the age of 50.
Consider the following example for an employee aged 50 or older:
If you are under the age of 50, the total of your contributions plus the company match is up to $26,250.
As a reminder, you should aim to contribute to your 401k each pay period. You may miss Qualcomm's full employer match if you reach the IRS contribution limit before the calendar year’s end.
Traditional 401ks are one of the most common investment vehicles in a large company’s 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. Your contributions can be automatically invested within your account so you are consistently saving for your future without having to take any steps manually.
The Roth 401k differs from the Traditional 401k in that contributions are made with after-tax dollars. As a result, there are no taxes on future distributions. Both contributions and any investment growth are distributed tax-free during your retirement.
There may be situations where contributing to the Roth over the Traditional 401k makes sense. The right answer for you will depend on several factors including your age, investment growth rate, current tax bracket, and expected tax bracket during 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. Possible changes include increasing the top tax rates, dismissing favorable treatment for long-term capital gains, and repealing set-ups in basis.
For more on this topic, see our article Tax Attorney Foresees Higher Taxes to Accompany Inflation.
The following displays a hypothetical situation for a Qualcomm 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 worker will achieve an annualized 7% rate of return on investments 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.
This table highlights the total taxes paid based on one contribution. 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.
With the Roth 401k, there is also an opportunity for more leniency with RMD rules. Although the distribution rules on RMDs still apply to Roth 401ks, the money is not taxable. Additionally, if you roll over the funds from your Roth 401k to a Roth IRA (more on this in the Rollovers section below), you do not need to take distributions. This may be a great option for those who wish to maintain continued, tax-free growth.
Within the 401k, Qualcomm offers its employees a specified list of investment options. Some investors may want to consider an expanded list of options that Fidelity offers through BrokerageLink.
BrokerageLink is a platform that provides access to thousands of investment choices. The increased options allow for you to be more specific in creating a diversified strategy by offering greater customization of your portfolio.
Rollovers and In-Service Distributions
If you are no longer working with Qualcomm, 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 benefits while maintaining your assets’ tax-deferred treatment:
- consolidation of your assets under the management of one preferred institution or financial advisor
- the possibility of 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 Qualcomm, 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.
While a rollover could provide more flexibility for some people, a rollover may not make sense for everyone:
- 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 Qualcomm
- 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 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 Qualcomm.
Qualcomm may 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
Employee Stock Purchase Plan (ESPP)
In the Employee Stock Purchase Plan (ESPP), participants can purchase Qualcomm stock at a discounted price. Your contributions accumulate in the plan until a specified purchase date. At that time, Qualcomm uses those funds to buy discounted shares on your behalf.
Qualcomm offers stock through their ESPP at a 15% discount, with purchase dates every six months. The offering periods are generally February 1st - July 31st and August 1st – January 31st.
These plans can be more challenging to navigate. Should you choose to participate, you will need to consider the following: when to enroll, how much to contribute, when to sell assets, and how the IRS rules 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 ordinary income, capital gains, and cost basis for the stock positions. 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.
One of the biggest factors to consider with ESPPs is the risk associated with holding concentrated stock positions in your portfolio. ESPPS can provide desirable diversification and upside but also warrant careful consideration.
It may help to look at a hypothetical situation:
- An employee contributes $10,000 to their ESPP
- At the end of the offering period, Qualcomm 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.
By reducing risk and investing in a more diverse portfolio, you do not necessarily sacrifice investment performance. If we look at the 10-year period from July 1st, 2012 through July 1st, 2022:
- Qualcomm stock (blue line) returned a total of ~101%
- The S&P 500 market index (black line) returned a total of ~172%
The investment performance is used to demonstrate a hypothetical example. Not every investor will achieve the same results.
In this hypothetical situation, the equity dollars in an investor’s portfolio would have seen greater returns with less overall risk.
This is not the only strategy for employer stock and this may not be the best strategy for every Qualcomm employee. It is important to consider all aspects of your financial plan before deciding your best course of action.
Restricted Stock Units (RSUs)
Companies like Qualcomm 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 Qualcomm and throughout your tenure as an employee. If you leave Qualcomm, 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.
RSUs are similar to ESPPs in that the underlying asset within these accounts is Qualcomm stock. As a result, it might be beneficial to consider using the same strategy discussed in the ESPP section of this article.
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.
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 Qualcomm or are no longer covered under the Qualcomm 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 2022, the IRS has determined that an annual deductible of $1,400 for an individual, or $2,800 for a family, qualifies as an HDHP.
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 individuals prefer to view their HSA as a long-term investment vehicle, where they plan to use 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.
The Qualcomm benefits package offers substantial value for its employees. As with many large corporations, the details and choices within the package can take considerable time to fully comprehend. It can also be challenging to implement a strategy that focuses on maximizing your individualized success throughout your career and into retirement.