https://www.kiplinger.com/retirement/retirement-planning/what-we-all-can-learn-from-the-microsoft-early-retirement-offer

Why 2026 is the problem year

Think about what’s about to stack up on a single tax return:

Your normal salary for the first half of the year. Then a severance lump sum paid after your July separation. Then your bonus. Then your RSUs that continue to vest (refresher: RSUs just get taxed as ordinary income at the time they vest).

Add it up and you can land in the highest federal brackets, lose deductions that phase out at higher income, trigger the additional Medicare surtax (a.k.a. NIIT), and set yourself up for IRMAA, the income-based surcharge on Medicare premiums that looks back two years. A big 2026 can raise your Medicare costs in 2028.

None of that is a disaster. It’s just expensive if you don’t see it coming.

The levers you still have — but only until December 31

The good news: there are still things you can control and most of the moves have a hard deadline of year-end (a few have a July 2 deadline). The big ones:

Max out pre-tax space while you still have earned income. Your 401(k), and if you’re 50+ the catch-up, come straight off the top of ordinary income. There’s a narrow window to front-load contributions before your separation date — after July 2, that door closes for the Microsoft plan.

Be deliberate about charitable giving in a high year. If you give anyway, a high-income year is the most tax-efficient year to give big. A donor-advised fund lets you take the deduction in 2026 — when your bracket is high and the deduction is worth the most — and then grant the money to charities over the following years. Funding it with appreciated MSFT shares instead of cash does double duty: you get the deduction and you sidestep the capital-gains tax on those shares.

Mind the order of operations on your stock. Selling concentrated MSFT to diversify is smart — but selling it in the same year your income already spiked can mean paying long-term capital-gains tax at the higher 20% rate plus the 3.8% surtax. Sometimes the right answer is to sell some now and some in January, once your ordinary income has dropped back down. (More on the concentration problem in a separate post.)

Look at whether a Roth conversion makes sense — later, not now. Counterintuitively, the high year is usually the wrong year to convert. But if your 2027 income is going to fall off a cliff, that low year can be a golden window to move IRA money into a Roth at a low rate. The buyout doesn’t just create a tax problem; it can create a multi-year tax opportunity if you plan across years instead of one at a time.

The mistake I’d most like you to avoid

It’s not any single move. It’s treating the severance like a windfall and the tax bill like next April’s problem. By April, almost every lever above is gone. The planning window is now through December — and the highest-value moves cluster in the next several weeks, before your separation date locks a few of them shut.

You did the hard part. You made the call. The next job is making sure you keep as much of it as the law allows.

If you want a second set of eyes on your specific numbers — your level, your vesting schedule, your concentrated position — that’s exactly the kind of exit we plan with people every week. Book a no-pressure 30-minute call → [BOOKING LINK]