Get to Know Maria Castillo Dominguez, Financial Advisor for IBM Employees & Executives

Richard: Many of the IBM health care plans are high-deductible health care plans (HDHPs) that allow you to save in a Health Savings Account (H.S.A.). An H.S.A. is a very powerful savings vehicle that can be triple-tax-free and allows you to build long-term savings for future healthcare costs.

The IRS sets annual H.S.A. contribution limits for individuals and families, and those limits are adjusted each year. IBM employees who have reached the qualifying age may also make an additional catch-up contribution. Once your H.S.A. reaches a minimum balance threshold, you can then invest the assets in a brokerage account. This is an underutilized benefit we regularly advise our IBM clients to maximize and build over time.

It’s often advantageous to avoid tapping your H.S.A. for healthcare costs so that you can allow the H.S.A investment account to compound over time; If you have the means, paying out-of-pocket for healthcare expenses can be a savvy tax move.

Emily: Virtually all employees are eligible to join the employee stock purchase plan (ESPP). So long as you are scheduled to work for more than 21 weeks throughout the calendar year, are employed at the beginning and end of the offer period, and work 20 hours or more per week during 16 of the 21 weeks to meet eligibility, you may join the plan at the start of the next offer period. Dates of offering are normally January 1 and July 1.

This plan allows you to purchase IBM stock at a 15% discount and build additional wealth beyond the 401(k) plan by saving up to 10% of your pay into the ESPP plan, capped at $25,000 worth of shares each year. As mentioned earlier, you can also invest your H.S.A. money like you would a retirement account.

Richard: Our detailed retirement planning process includes:

• A spending strategy tailored to your income goals
• Social Security timing recommendations
• Coordination of health care benefits
• Discussion around how your spending will change throughout retirement
• Stress-testing your retirement projection with many what-if scenarios
• Timing your exit to maximize any unvested incentive stock options (ISOs), non-qualified stock options (NSOs), or RSUs

IBM benefits package is genuinely attractive, but it only pays off if you know how to use it. A few focus points:

1. We usually start with the obvious: 401(k) contributions. A lot of people are missing that IBM ended their employer contributions (or “match”) in 2024, replacing it with a new Retirement Benefit Plan inside the IBM Pension Plan. IBM is still contributing to your retirement, they are just doing it a little different (which plays in your favor if you do the mega backdoor Roth)

2. Most people know there is a limit on how much you can put in a 401(k). What most people don’t know is that there are actually two limits, and the gap in between is the Mega Backdoor Roth opportunity.

The first limit you have heard about: $24,500 in 2026 (or $32,500 if you are over 50, or $35,750 if you are 60-63).

The second limit is an annual limit that the IRS cap at $72,000, covering employee contributions, employer contributions, and after-tax contributions. Since IBM no longer contributes to your 401(k), the entire gap between $24,500 and $72,000 – a full $47,500 – is sitting there unused. That is a real opportunity to contribute to tax-free growth.

I hear often from people that they don’t want to “lock” all their savings in retirement, and here is something else people are not thinking about: there are rules that allow you to distribute Roth contributions and Roth conversions (a Mega Backdoor Roth is considered a conversion) with no penalty. Usually, contributions can be distributed at anytime, and conversions after 5 years. So for those retiring early, this bucket can be a game changer.

If I had to pick one, it’s the ESPP, and specifically what happens after you buy the shares.

Most IBM employees who participate in the ESPP understands the 15% discount. What they don’t think through is the strategy of holding vs selling.

IBM’s ESPP allows employees to purchase IBM stock at 85% of the market price, which means you receive an instant 15% return when you purchase the shares. What makes IBM unique is that they purchase shares every single paycheck (most ESPP purchase shares twice a year), which makes IBM ESPP a lot more active and in need of more careful maintenance.

The moment those shares hit your account, you are sitting on a 15% gain immediately (more or less as market prices move quickly). If you want low risk, your time to sell is right when you receive your shares, so you lock in your gain and move on. If you decide to hold, you are now subject to the market moves and need to track timing carefully, because ESPP tax treatment is notoriously misunderstood. Sell too soon and you trigger a disqualifying position, meaning your gain is taxed as ordinary income. To qualify for long-term capital gain rates (more favorable) you will have to wait a year. So, there is a tradeoff: potentially better tax treatment but you are taking on IBM stock risk.

For most people, the math favors selling immediately and redeploying the proceeds into a diversified portfolio. Holding the shares means you are betting on IBM, and you are already betting with your employment, income, and RSUs.

I wrote a full series on ESPP, you can start reading here.

The HSA is the most underutilized wealth-building tool that I see all the time. Most people treat it like a healthcare spending account: money goes in, take the tax break, money goes out to pay medical bills.

However, HSAs offer a triple-tax advantage that can be a great retirement bucket in disguise. Contributions go in pre-tax, balance grows tax-free, withdrawals are tax-free if used for medical purposes.

Now, the IRS does not put a limit on when you reimburse yourself for your medical bills, so you can contribute, invest for many years, then distribute tax-free if you use it for medical purposes. My advice: if you can afford to pay the medical bills from your cash flow, let the money in your HSA grow tax-free for years, save all your medical bills and reimburse yourself later, potentially even when you retire and your income is lower and you need extra funds.

Before you resign:

Know exactly your RSU vesting schedule. Unvested RSUs are forfeited the moment you leave. If a significant tranche is vesting soon, you might want to consider delaying your resignation. This is one of the most expensive mistakes I see, leaving weeks before a large vesting and losing thousands of dollars.

Don’t lose track of your ESPP shares. IBM purchases shares every paycheck and if your strategy has been to sell immediately, make sure you don’t let those shares slip through the cracks during the job transition.

Review your 401(k) options. In most cases, transferring to a new 401(k) plan or Rollover IRA make sense. But make sure you understand the backdoor Roth IRA rules. If you are making backdoor Roth IRA contributions, you cannot have a balance in a Rollover or Traditional IRA (check the pro-rata rule).

Your HSA goes with you, so keep managing this account. Keep investing, keep saving medical receipts, and don’t change the strategy because you change jobs.

Have a plan for your IBM stock. It is very common to hold a concentrated IBM position. If you are subject to IBM’s trading restrictions, you will have full flexibility to diversify.

Concentration risk: RSUs vesting quarterly, ESPP shares coming in every paycheck, IBM stock available inside the 401(k)… it adds up fast. Most clients don’t realize how much of their net worth is tied to a single company that also pays their salary until we lay it all out together.

Tax surprises: RSU vesting is a taxable event the moment shares are delivered, whether you sell or not. ESPP dispositions are taxed differently depending on how long you hold. Mega Backdoor Roth conversions have their own rules. On top of a high base salary, the tax exposure in any given year can be significant. My job is to help clients see what’s coming before it arrives, not after.

Pension: Most IBM employees have no idea what their cash balance plan is actually worth or how it factors into their retirement income. Getting clarity on this early changes the entire strategy. Almost nobody has modeled whether the lump sum or annuity is a better choice.

Planning for early retirement without the right buckets. IBM attracts people who want to retire early, but that requires a very specific sequencing strategy across taxable, tax-deferred, and tax-free accounts. The Roth bucket, built deliberately through the Mega Backdoor Roth, is often the piece that makes early retirement actually work.

If you want to go deeper into how equity compensation planning fits into a long-term strategy, I have put together a full guide here.

If you’re a highly compensated IBM employee or executive, your financial plan needs to account for more than your salary and 401(k). Your equity compensation, trading restrictions, deferred compensation, and tax situation can all make planning more complicated.

If you’re subject to trading restrictions or blackout periods, diversifying a concentrated IBM position can be more complicated, but you have the 10b5-1 plan available. What this plan does is it allows you to create a predetermined trading schedule during an open trading window, giving you a way to diversify or create liquidity even when you’re later subject to a blackout. And because IBM restricts certain hedging strategies and pledging shares as collateral, having a deliberate diversification strategy becomes even more important.

You  may also face limitations or refunds due to nondiscrimination testing. It is rare, but real. That’s why strategies such as the Mega Backdoor Roth, when available, can be particularly valuable as part of a broader retirement savings strategy.

If you have access to IBM’s nonqualified deferred compensation plan, it can be a powerful way to defer income during your highest-earning years. But unlike a 401(k), it’s generally an unsecured obligation of IBM which can carry significant risk. It is important to carefully study your deferral amount and payout elections.

And then there’s the ongoing tax planning. Your salary, RSU vesting, ESPP purchases, deferred compensation, and capital gains can all affect one another. Looking at these decisions year by year is imperative so you don’t miss any opportunities to manage your tax liability over time.

You can learn more about how your equity compensation affects your financial plan here.

Corporate restructuring moves fast. When a spin-off happens, several things need immediate attention.

Equity awards are usually adjusted to reflect the new structure, but the details vary and the assumptions can be wrong. Know exactly how your RSUs were treated, what your new cost basis is, and whether your vesting schedule changed.

Retirement accounts don’t follow you automatically. If your employment transfers to a new entity, verify when and how your 401(k) transfers, whether your investment options change, and whether any loan terms are affected.

Benefits need to be re-evaluated from scratch. A new employer may have a completely different 401(k) match, ESPP, pension, and HSA structure.