Navigating Microsoft’s 401(k) plan can be daunting, especially with the diverse options and features available. Below, we lay out the components of the plan and a few clear, useful tips any Microsoft employee can use to improve their current plan.

What Sets the Microsoft 401(k) Apart

There are three key aspects of Microsoft’s plan that make it stand out from others in the industry: 

1. Employer match program. Microsoft will match 50% of your 401(k) contributions up to the pre-tax/Roth contribution limit. As of 2025, an employee can contribute up to $23,500 in pre-tax/Roth dollars. That means Microsoft can add up to $11,750 in matching contributions to your account if you contribute the maximum. Microsoft’s match will always be a pre-tax contribution.
   
   Even more notably, Microsoft’s matching contributions vest immediately. In other words, you own 100% of the company’s contribution right away. This is true even if you leave the firm the day after the funds are deposited into your account.
   
   Note: Microsoft does not match catch-up contributions for individuals over the age of 50.

2. Wide selection of investment funds. As a Microsoft employee, you can choose from a diverse set of funds, including over 25 investment options —from target-date to individual index to actively managed funds. This broad selection enables employees to choose the right mix of investment vehicles to meet their unique set of priorities and goals.
   
   Bonus: You even have access to a Brokerage Link which expands your options beyond the 25+ investments listed!

3. Emphasis on flexibility. Microsoft’s plan lets participants create their own tax strategy. They can contribute from pre-tax (Traditional), Roth, after-tax, bonus pre-tax, bonus Roth, and bonus after-tax dollars.

Start Now to Get the Most Out of Your Microsoft 401(k) Plan

As you consider how to tailor Microsoft’s plan to meet your specific goals, here are three key actions you can implement. 

1. Max out your pre-tax/Roth contribution limit of $23,500. Given the impressive employer match, focus on maximizing Microsoft’s contribution to your 401(k) plan. The more you contribute, the more Microsoft will contribute, and they will do so until you hit the $23,500 limit. That’s an extra $11,750 of Microsoft’s money, and it vests to your retirement account immediately.
   
   Getting the full match is like getting a 10% raise on a $120,000 salary! If you can contribute $23,500 from your salary to your 401(k), consider adjusting your deferrals today. Otherwise, you are leaving free money on the table.

2. Take advantage of catch-up contributions. If you are 50 or older by the end of the year, you can contribute an extra $7,500 to your 401(k) in 2025. Those 60 to 63 can contribute an additional $11,250 in place of the $7,500. You can choose to make this contribution pre-tax or as a Roth contribution.
   
   Although these additional funds, commonly referred to as “catch-up contributions,” will not qualify for the employer match, they will help you save significantly more towards retirement.

3. Consider after-tax contributions, especially for the mega backdoor Roth strategy. We want to be sensitive around balancing shorter-term goals with the goal of retirement, but if your budget allows, you can contribute even more to your plan than the $23,500 limit mentioned earlier. This limit applies to pre-tax and Roth contributions only.
   
   You can also make after-tax contributions to your 401(k). As of 2025, your 401(k) account can receive as much as $70,000 in contributions each year. This includes all the money deposited into the account—both from you and your employer.

For example, an employee contributes the maximum amount of pre-tax/Roth dollars ($23,500). Microsoft matches 50% of that, which equals $11,750. In total, those contributions add up to $35,250—far short of the $70,000 limit. Therefore, this employee could still contribute another $34,750 in after-tax contributions to their 401(k) account.  

Microsoft also allows for in-plan Roth conversions, which completes the mega backdoor Roth strategy. You can learn more about the mega backdoor Roth strategy here.  

Analysis Paralysis 

A highly flexible retirement plan like Microsoft’s can provide enormous benefits but can also feel overwhelming. Probably the most common way people learn valuable “hacks” about their employer’s plan is through their coworkers. But those coworkers aren’t privy to the whole picture.  

Consider the range of personal and professional questions you might be facing:  

• How do you balance saving for shorter-term goals (wedding, kids, house, etc.) with making sure you are on track for retirement?
• How should your 401(k) be invested?
• Should you be making pre-tax or Roth contributions?
• Does maxing out after-tax contributions make more sense through your paychecks or using your annual bonus? How does this impact cash flow?
• Should you prioritize debt or your 401(k)?
• What should you do with your old 401(k) plans?

Your answers to these questions should directly inform your planning decisions. And they should make you cautious about simply opting for the plan’s default options—or taking the same approach as your colleagues.  

Our team’s in-depth knowledge of Microsoft’s retirement plan combined with our financial expertise and extensive array of quantitative tools can help simplify, streamline, and maximize your specific retirement plan. We are here to help you navigate the complex, inter-related set of decisions that constitute retirement planning.

Building a career at Microsoft is an opportunity to work at the forefront of technology alongside some of the brightest minds in the industry. Microsoft compensation packages are also quite robust with excellent salaries and a benefits package with incredible potential.

Microsoft Compensation

Your total compensation is the sum of your:

• Base salary
• Bonuses
• RSU grants

Microsoft Benefits

Beyond your salary, bonus and RSU grants, Microsoft also offers some incredible benefits in their compensation package. Your benefits include:

• 401k match
• HSA match
• Employee Stock Purchase Program
• Deferred Compensation Plan
• Life insurance
• Long-term disability
• And more

HSA Match = $1,000 – $4,375

Microsoft’s HSA match varies and depends on which level you fall into and how many dependents you have on your health plan.

You must be in a high deductible health plan (HDHP) to be able to participate in a Health Savings Plan (HSA). Due to the amazing tax advantages of the HSA account, we love to recommend this to clients, but that doesn’t mean it is right for everyone. If you’re considering a HDHP, it’s important to consider all the factors including your providers, your health needs, if you’ll have a baby that year, etc.

• Tip: The employer contribution that Microsoft offers counts towards the annual contribution limit of $4,300 for an individual and $8,550 for a family (plus a $1,000 catch up if over 55).

Life Insurance = 3x salary

At Commas, we’ll weigh if you need additional coverage—whether that is through voluntary coverage at Microsoft or via the open market.

• Tip: Be sure to add beneficiaries to your Microsoft life insurance policy so that it passes to the appropriate people if something happens to you.

Long-term Disability = 60% salary up to a maximum of $15,000 per month

This is a benefit that you pay for—but that means the benefit is tax-free to you if you need to claim disability. You can also consider purchasing additional disability insurance from an outside provider to cover a higher percentage of your lost income.

Employee Stock Purchase Program (ESPP) = 10% discount on Microsoft’s stock price

Every year you can contribute a maximum of 15% of your cash compensation, up to a limit of $25,000, which means an immediate benefit of $2,500/year!

Be aware of qualifying and disqualifying dispositions. While qualifying dispositions come with favorable tax treatments, it also comes with the risks of holding Microsoft stock for a prolonged period of time.

• Qualifying disposition means the stock must be held 1 year from the purchase date, and 2 years from the initial offering date to gain favorable tax treatment.

Deferred Compensation Plan (DCP) = Defer some of your taxable income today to a year in the future

This benefit is only available to employees who are Level 67 and higher and there are only two times during the year to enroll:

• May (defer next year’s bonus).
• November (defer next year’s salary).

When considering taking advantage of this benefit, you should weigh tax rates today vs. future tax rates and the risks of Microsoft’s longevity. With DCP, you are deferring compensation to a later year, in anticipation of Microsoft still being in business.

Maximizing Your Awards 

Think of the mix of salary, RSUs, and benefits that comprise your compensation as distinctive sources of wealth. Each has unique properties—advantages, as well as limitations—that enable you to achieve particular goals.

You can find more details about your specific benefits in HRweb – Benefits (aka.ms/benefits). When you are hired—and each year during open enrollment—you will make your benefit selections via aka.ms/benefitsenroll.

Our team has an in-depth understanding of Microsoft’s multi-level incentive structure, and we can help you navigate and optimize your specific compensation package, as well as make your benefit selections and review them annually.