Author: Alma Pajova, MAFM | May 8th, 2025

Xartis Wealth Advisors, Financial Strategist

You’ve landed the job. The paycheck looks great. And then the rest of the offer hits you: RSUs, ESPPs, 401(k)s, and something called a Mega Backdoor Roth?

Welcome to tech compensation—where your salary is just the starting line.

Tech compensation isn’t just paycheck, it’s a PUZZLE. And if you solve it right, it can fuel lasting wealth.

Let’s walk through the major parts of a typical tech offer and how to think about each component.

1. Base Salary: Your Financial Bedrock

This is the part you know well; it shows up every two weeks and pays the bills. It’s steady, reliable, and fully taxed.

What to know:

• Taxed at ordinary income rates

• Shows up on your W-2

Think of it as your financial floor—not your ceiling.

2. RSUs: Stock with a Timer on It

Restricted Stock Units (RSUs) are a big deal in tech. They’re promises from your employer to give you company stock over time. You have to stick around to earn these share as they vest.

What to know:

• When RSUs vest, they’re taxed as ordinary income

• If the stock goes up after that, future gains are taxed as capital gains

• Companies usually withhold 22% for taxes—but if you’re in a higher bracket, that might not be enough

Tip: RSUs can be a big wealth lever, but they can also leave you with a surprise tax bill if you don’t plan ahead.

3. ESPP: Discount Stock, Real Potential

An Employee Stock Purchase Plan (ESPP) lets you buy your company’s stock at a discount—often 15%. Done right, it’s free money. Done wrong, it’s a tax mess.

What to know:

• You can buy up to $25,000 worth of stock/year (based on the price at the start of the offering period)

• If you sell right away, the discount gets taxed as ordinary income

• If you hold it 1 year from purchase and 2 years from offering, gains get favorable capital gains treatment

Tip: If your company’s stock is volatile, be careful. ESPP is a great tool—but not without risks.

4. 401(k) and Mega Backdoor Roth: Tax Shelters

Most tech companies offer a 401(k). Some also let you contribute extra after-tax dollars and roll them into a Roth. This is known as a Mega Backdoor Roth.

What to know:

• Traditional 401(k): Tax break today, pay taxes later

• Roth 401(k): Pay taxes now, withdrawals are tax-free in retirement

• Mega Backdoor Roth: Contribute after-tax, convert to Roth → tax-free growth on much higher amounts

Tip: If you’ve got the cash flow, this is one of the best long-term wealth moves available.

5. Deferred Comp: Time Your Income Like a Pro

Deferred compensation lets you push part of your pay into the future. It’s not taxed now—but it will be later when you actually take it out.

What to know:

• You still pay Social Security & Medicare taxes now

• You defer income tax until distribution (like in retirement or during a sabbatical)

• It’s an unsecured promise—if your company runs into trouble, you could lose it

Tip: Use deferred comp if you’re in a high bracket now and expect a lower one later. But don’t rely on it as your emergency fund.

6. Tax Traps: Know Where They Hide

The IRS doesn’t care how confusing your comp is, they still want their cut. And if you’re not careful, you’ll be writing a big check in April and possibly deal with an underpayment penalty.

Common traps:

• RSUs often under-withhold for high earners → big bill at tax time

• Selling ESPP shares too soon = short-term gains and ordinary income

• Deferred comp requires years of advance planning—you can’t just change your mind once a selection is made

Tip: Work with a tax or financial planning pro. A little planning can save you thousands

7. Concentration Risk: Don’t Put All Your Eggs in One Basket

If you’re getting RSUs, ESPP, and bonuses in one company stock, you are heavily concentrated. That’s fine… until it isn’t.

What to know:

• One bad quarter could sink your portfolio

• Holding too much stock = less flexibility, more risk

• Selling = capital gains tax, but peace of mind is worth it

Tip: Don’t let fear of taxes stop you from diversifying. Spread the risk. Protect your future

Final Thoughts

Tech compensation can be a gift—or a missed opportunity. But once you understand how the pieces fit together, you can turn a good offer into a great financial life

Want help reviewing your compensation or setting up a strategy? Get in touch today and let’s map out a strategy that works for you! The earlier you start, the bigger the impact.