Bonus vs Salary

[Yankeefan]

My compensation structure consists of a base salary and performance based bonus.  The bonus is based on the profitability of project(s) oversee and is theoretically uncapped. My employer offers an option to take advance of 150% of my base now and will deduct the difference between my base and advance from my bonus.  I expect my bonus to be in the neighborhood of 3.15 x base ( not a percent but 3.15 times my base).  I think I am better off taking the advance now, from a tax perspective, and from a 401k respective.  As I will accumulate contributions sooner.  Is this the best plan financially? What aspects am I not taking into account? Any comments are appreciated. 

YF

[Anonymous]

Is it all 150% or nothing on the advance? Really nobody here can answer your question without knowing your tax bracket, income, more specific numbers, and numerous other variables. I would bite the bullet and meet with a fee only financial planner or with a tax specialist when talking large numbers like this. Laws and taxes vary from state to state so you really are better off paying a pro. For instance if you are in a state with no income tax, that would be a game changer. 

[Yankeefan]

Bureau,

My options are limited to my base ($85k) or an "advanced" base of ($135k). Should I take the "advanced" base option the ($50k) delta would be deducted from my project end bonus.  I am looking at a bonus of (225k+) at the end of Q4/ beginning of Q1 2017. I am currently in the 28% bracket and live in a state without income tax. 

YF 

[Anonymous]

Assuming that your bonus and salary are paid in different years, from a tax perspective, moving it earlier is beneficial, as you're removing money from what will be a higher bracket. From a 401k persepctive, you want to put your money in incrementally, rather than all at once. You cap at somewhere around $18k, so I would put $1500 in every month. I don't like putting in all at once because you are subject to greater market risk, as the market moves around a lot. Putting the money in incrementally means you'll win some and lose some, but overall it will even out. As an overall assessment, from a financial perspective, I think you should take the advance. However, it might have the effect of being a golden handcuff, which is something you need to consider if you might be moving on in the next couple years.