FAANG Savings Prioritization. Discover strategic investment scenarios for mid-level FAANG employees and tech professionals looking to optimize $100k in annual savings. This guide covers various financial situations and offers practical advice on prioritizing savings and investments to achieve financial independence.
I’m confused about the 401k bit. I thought max contribution is 23k regardless of Roth/traditional. So if you put 23k in pre-tax, you won’t be able to put anymore in roth?
Some employers (all FAANG) allow you to make after tax contributions into your 401k which is distinct from Roth/traditional employee contribution limits. Often colloquially referred to as a mega back door Roth.
Would love to learn more about how this policy came about for FAANG companies. Have not seen it allowed at other employers, so would be interested to learn more to get access to it :D
Very high level: There are a lot of regulations around 401ks in how they are setup to make sure they are not used only by executives. These are referred to as discrimination tests. So normally a company can't design a plan where only those with the higher incomes able to contribute disproportionally.
This ends up being less of an issue at larger tech companies because there is a large population of high earners outside the executives (ie lots of engineers). If a company also has a large number of, say retail employees, it can end up making it where they can't easily offer the same benefit.
It is always worth asking your benefits team to see if they can add it though! They might not know it is something valuable to their employees.
Can you share the math for why ESPP (15%+ instant discount, mostly taxable with some weirdness if held for multiple years) is prioritized above maxing out mega backdoor roth 401k space, which at high income tax levels is worth more (https://www.bogleheads.org/forum/viewtopic.php?t=171858)?
Generally the way I am thinking about the ESPP is that it has an aspect of "free money". Particularly with a discount and long look back period. Some of the underlying assumption here is that it will also be sold once able, and then the proceeds used to go to the next item within the list. That takes me through to HSA (which is essentially a super roth), then maxing out Pre-Tax, followed by then maxing out your Back Door Roth.
I’m confused about the 401k bit. I thought max contribution is 23k regardless of Roth/traditional. So if you put 23k in pre-tax, you won’t be able to put anymore in roth?
Some employers (all FAANG) allow you to make after tax contributions into your 401k which is distinct from Roth/traditional employee contribution limits. Often colloquially referred to as a mega back door Roth.
Would love to learn more about how this policy came about for FAANG companies. Have not seen it allowed at other employers, so would be interested to learn more to get access to it :D
Very high level: There are a lot of regulations around 401ks in how they are setup to make sure they are not used only by executives. These are referred to as discrimination tests. So normally a company can't design a plan where only those with the higher incomes able to contribute disproportionally.
This ends up being less of an issue at larger tech companies because there is a large population of high earners outside the executives (ie lots of engineers). If a company also has a large number of, say retail employees, it can end up making it where they can't easily offer the same benefit.
It is always worth asking your benefits team to see if they can add it though! They might not know it is something valuable to their employees.
Thanks so much, Andre! This is helpful context that I was not aware about.
I’ll keep you updated on any developments :D
Can you share the math for why ESPP (15%+ instant discount, mostly taxable with some weirdness if held for multiple years) is prioritized above maxing out mega backdoor roth 401k space, which at high income tax levels is worth more (https://www.bogleheads.org/forum/viewtopic.php?t=171858)?
Generally the way I am thinking about the ESPP is that it has an aspect of "free money". Particularly with a discount and long look back period. Some of the underlying assumption here is that it will also be sold once able, and then the proceeds used to go to the next item within the list. That takes me through to HSA (which is essentially a super roth), then maxing out Pre-Tax, followed by then maxing out your Back Door Roth.