.png)
.png)
First off, congratulations on reaching the Officer level at Walmart! It is a huge achievement and should be sincerely celebrated by you and your support network. As the level of responsibility and expectations ramp up significantly, you will also see significant changes in your personal finances including higher taxes, more access to the Walmart Deferred Compensation Matching Plan (DCMP) and an increase in equity compensation in the form of performance shares. Oh, and you will be making more money so take a few seconds and smile before we jump into problem solving!
Executive Summary
This article discusses 3 ways personal finances change for Walmart officers and how to address them. While these are significant changes, addressing them is straightforward, tactical, and actionable. The three changes are:
1.) Higher Taxes – You are now deep into the higher tax brackets. This means you are paying more than 40% in taxes on a large portion of your income. Additionally, you will need to consider making quarterly payments to avoid any under withholding penalties from the IRS. Fortunately, there are some straightforward tactics to address the tax issue including taking advantage of the Walmart Deferred Compensation Matching Plan (see below), making quarterly estimated payments to the IRS and asking your advisor for a tax projection.
2.) More Access to the Walmart Deferred Compensation Matching Plan (DCMP) – Good news! You are now able to contribute up to 100% of your Management Incentive Plan (MIP) and 80% of your base salary to the Walmart Deferred Compensation Matching Plan. The Walmart DCMP is the best tool you have to save on taxes, so it is important that you have a thought-out strategy and implement it. See our article, Walmart DCMP: The 3 Decisions to Get Right, on the key strategic decisions you will need to make.
3.) More Equity Compensation – You will receive a bump in base salary, MIP and restricted shares, but the largest increase comes from the addition of performance share units (PSUs) to your compensation package. The two things to remember about PSUs are 1.) The 3-year cliff vesting schedule differs from the restricted stock vesting schedule and 2.) The extra “feather-in” grants you may receive your first 2 years as an officer.
Now, let’s jump into these three issues and solutions in more detail!
1.) More Money, More Taxes…
As your taxable income increases, you are going to pay more taxes. It is common for a new officer to owe the IRS close to $100,000 following their first full year as an officer. This happens for two reasons:
You are paying more than 40% of the incremental income you earned from the promotion on taxes.
Walmart (as do many employers) does not withhold enough taxes on your supplemental income which includes your MIP, restricted stock, and performance shares.
There are simple tactics you can implement that will reduce your tax bill, eliminate under withholding penalties, and just make tax season more predictable so you can avoid unpleasant tax surprises.
A.) Defer More Income - Now that you are in the top tax bracket, it is even more important to reduce taxable income by deferring income to tax advantaged accounts. These accounts include 401(k), Health Savings Account and, most importantly for you, the Walmart Deferred Compensation Matching Plan (more on the Walmart DCMP below.)
B.) Make Quarterly Estimated Payments - Consider making extra quarterly payments to the IRS. While you already pay quarterly taxes through paycheck withholding, it might be insufficient. Consult your tax or financial advisor to determine the amount, but a general guideline is to calculate 10-15% of your supplemental income (MIP, Restricted Stock, and Performance Shares). Note that Walmart withholds supplemental income at 22%, and your marginal tax bracket is likely 32-37%. Typically, you won't need to make the quarterly payment until the fourth quarter if your tax preparer allocates withholding from supplemental income to the first quarter.
C.) Tax Projection - Finally, ask your financial or tax advisor for a tax projection. This has become more common in the industry and is a simple ask especially if that advisor is already familiar with your tax situation. An up-to-date tax projection is an easy way to
Estimate how much you will owe the IRS (and State),
Determine whether you need to make quarterly payments and
Ensure you are not missing out on any tax saving strategies.
2.) Full Access to the Walmart Deferred Compensation Matching Plan
The Walmart Deferred Compensation Matching Plan (DCMP) is one of the best tools Walmart Executives have to reduce taxes and finance life after Walmart. While Sr. Directors are allowed to contribute up to 80% of MIP into the Walmart DCMP, officers are allowed to contribute 100% MIP AND 80% of Salary. Here are the key points to take full advantage of the tax saving and retirement planning opportunities available through the Walmart DCMP.
A.) Defer More to Keep Taxes Lower - The main benefit of the Walmart DCMP is the opportunity to save on taxes. The key is to defer enough to reduce taxable income to (at the most) $383,900 for 2024 for Married Filing Jointly Filers ($191,950 for Single Filers.) The reason is that for married couples filing jointly all dollars above $383,900 are taxed at 32% or higher and all dollars below the threshold are taxed at 24% or less - $191,950 for Single Filers.
B.) Flexibility in How Much to Contribute - While the decision to contribute income from the MIP occurs over a year before the bonus is paid out, you can make the decision to defer salary much later. This is a positive because by December you will have a good idea of how much cash flow you will need the following year AND whether the performance shares will pay out at target. If you have extra expenses or expect the performance shares to pay out below target, you will simply defer less salary.
C.) Schedule Distributions for Low Tax Years - Plan for the Walmart DCMP distributions to fund your annual living expenses for the initial years of retirement. The years between retirement and the beginning of social security and required minimum distribution payments are the best years to schedule distributions as you will likely have minimal other taxable income. This allows the income tax rate to remain at 24% or less and for your other investment accounts to grow uninterrupted.
3.) More Equity Compensation via Performance Shares
As a Sr. Director you were accustomed to receiving restricted shares which vest quarterly or monthly over 3 or 4 years. Now, as an officer you will be receiving another type of equity compensation: Performance Share Units (PSUs).
The PSUs will account for a significant portion of your compensation, sometimes approaching the same amount as your base salary. A few things to consider:
A.) Diversify Quickly - The performance shares vest early in the year, typically in March. Since you will want to avoid holding such a concentrated position of company stock for long periods, best practice is to quickly sell the company stock while the trading window is open (it typically closes at the end of March and reopens after Q1 earnings are released.)
B.) 3-Year Vest Period – Unlike the RSUs which may vest annually, quarterly or monthly over several years, the PSUs vest entirely at the end of the 3 year period
C.) Feather-In grants– Since the regular officer level PSU grant only vests after 3 years, a new officer (and recently promoted SVPs) will receive two extra grants referred to as "Feather-In" grants (there has to be a better name for these.) The first grant is awarded around the time of promotion and vests after 1 year. The second grant is awarded a year after promotion and vests a year later. These grants allow the officer to receive the step up in compensation in Year 1 and Year 2 while waiting for the initial grant to vest at the end of year 3.
D.) Defer the Cash and Live off the Equity - The increase in equity compensation may allow to defer more to the Walmart DCMP. One strategy is to defer 100% MIP and a large portion of base salary and then use the equity from PSUs and RSUs to cover living expenses. Of course, this takes planning and is not the right approach for everyone. Again, the key to the Walmart DCMP is to minimize taxable income above $383,900 for married couples and $191,950 for Single Filers.
Key Takeaway
Again, congratulations on the promotion. In addition to more responsibility and higher expectations in your new Walmart role, your personal finances have become more complex and the cost of making mistakes has increased. You are not expected to know everything about managing your personal finances, but I hope this article provides more clarity on what to expect and which questions to ask internally at Walmart and/or an advisor. If you would like to discuss these changes and how they will impact your personal finances, there are several resources on the TFP site and feel free to schedule time with a TFP financial planner below.
Mark Chisenhall, CFA is the founder of Taurus Financial Planning, a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.
Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.
This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.
.png)