It’s a new year, but you aren’t making any financial resolutions. It’s already a habit with you. You’re smart, savvy and you pay attention to all the personal finance advice.
You’ve got this, right? Well, maybe. There’s a chance even you are leaving money on the table. As the new year begins and you take stock of your financial situation and goals, are you overlooking an obvious place where you spend most of your time? Your workplace.
Your employer likely offers an array of benefits and perks you might not even be aware of simply because they may not be explicitly advertised. In addition, the new tax law has created as well as preserved — opportunities to improve your financial wellness.
While we tend to focus on getting ahead at work and increasing our earnings, we often forget one of the basic rules of wealth creation: Every dollar saved is a dollar earned.
Consider paying 2018 health care expenses out of pocket and letting your HSA account grow for your retirement years.
Sure, you’re likely aware that your company has a matching 401(k) contribution. In addition, every pretax dollar your company allows you to put aside saves you 20 cents on your taxes if you have a 20% effective tax rate (well done, by the way, if you do!). You also likely know the annual open enrollment period offers you the opportunity to purchase additional life insurance, disability insurance and other protection benefits.
However, there are additional things you can do to improve your financial wellness over the coming year. Here are a just a few workplace benefits/perks you possibly could take advantage of right now:
1. Increase your health savings account contributions.
While saving for retirement is certainly an important priority, many of us fail to adequately anticipate increasingly high, and more frequent, health care costs. If you are enrolled in a high-deductible health plan, you may be able to contribute to a health savings account (HSA), which can help you manage those costs without eating away at your retirement savings. An employer does not control whether you are able to contribute to an account, just whether to provide a health plan that offers an account. And increasingly, many employers are choosing this option. Some companies even offer an employer contribution.
The main requirement to being able to contribute to a health savings account is being enrolled in a high-deductible health plan, though there are some caveats. For instance, you may not also be enrolled in a non-high deductible health plan, Medicare or Tricare, or reside outside the U.S.
Your HSA allows you to benefit from a unique triple tax break: a tax-deductible contribution, tax-free earnings, and tax-free withdrawals if paying for qualified health care expenses down the road. Therefore, consider paying 2018 health care expenses out of pocket and letting your HSA account grow for your retirement years. The maximum HSA contribution in 2018 is $3,450 if you cover yourself only (no change from 2017) and $6,900 if you also cover dependents under your medical coverage (an increase of $150 from the 2017 maximum). And if you will be age 55 or older in 2018, you can contribute an additional $1,000 to your HSA.
2. Adjust your 401(k) contributions based on proximity to goals and changing tax implications.
If your employer’s plan offers you a Roth 401(k) option, this may be a better alternative based on the lower tax rates taking effect in 2018. That’s because unlike with traditional 401(k)s — which are funded with pretax contributions and which you must pay taxes on all withdrawals in the future — with Roth accounts, you pay the taxes upfront, the accounts grow tax-free, and withdrawals are generally tax-free after age 591/2, as long as the account has been open for at least five years. In addition, with Roths there are no required minimum distributions that kick in at age 701/2, unlike with traditional 401(k)s. If you are now in a lower marginal tax bracket, you may have more discretionary income to put into a Roth 401(k). Also, the 401(k) savings limit increased in 2018 from $18,000 to $18,500 (and for those 50 and older, the limit has increased to $24,500), so if you can afford it, you can now save even more for retirement in a tax-advantaged way.
3. Take advantage of transportation reimbursement programs.
Many companies offer subsidies on public transportation cost, or allow you to pay for them with pretax dollars. These benefits may apply to parking, train tickets and even tolls and fuel in some cases. Under the new tax law, the subsidies companies offer to employees are no longer deductible to corporations, and as a result, some subsidies may be altered or eliminated at some point going forward. If your employer offers these benefits in 2018, take advantage as they can add up to significant savings on money that you may be spending anyway on commuting costs.
4. Use that corporate discount.
When was the last time you checked to see which companies your employer partners with to offer employee savings and discounts? Is your new cellphone provider on the list? These discounts can really add up on anything from software to automobiles and are worth checking out.
Of course, benefits will vary from one company to another, but, chances are, there are at least a few your company offers that are not widely known. So investigate, ask and enhance your savings and please consult your tax and legal advisers regarding your personal circumstances.
(Article written by Vishal Jain)