6 Tips for Maximizing Your Paycheck and Benefits
The new year is underway, and there are few simple, yet valuable steps you’ll want to take very soon to ensure that you’re getting the most out of your income and workplace benefits.
1. Update Your Tax Withholdings
Each year, you should complete a new federal tax withholding form (W4). This is especially important if you had, or expect to have, any life changes that would impact your taxes. This may include changes in your relationship status (married/divorced), number of dependents, income, etc. If you live in a state that imposes state income tax, as most of us do, then be sure to complete the paperwork for that as well. Generally speaking, your goal when filing your taxes is to get as close to a $0 balance as possible - meaning you don’t owe anything and you don’t get a refund.
2. Assess Your Retirement Account
If your employer offers a company match retirement program, such as 401(k), SIMPLE IRA, etc., you want to at least contribute enough to get the full match. Otherwise, you are “leaving money on the table”, as they say. You should also take some time to assess how your funds are allocated/invested. If you’re not financially savvy, then it may be best to seek professional advice to ensure that you’re not losing money or missing out on possible gains. Most of us like to set it and forget it, but an occasional check-in is critical to your financial performance.
3. Use Your Flexible Spending Account (FSA)
An FSA is a great way to pay for medical expenses with pretax funds. The best part is that your employer funds the account upfront, and you essentially pay them back via equal payroll contributions. For example, if you elected $2,600 in your FSA, your company put those funds in your account at the beginning of the year. You can use the full amount right away for surgeries, prescriptions or other qualified medical expenses. Assuming you get paid bi-weekly (26 paychecks per year), the company will deduct $100 from each of your paychecks. These are pre-tax deductions, so it lowers your taxable income.
4. Assess Your Health Savings Account (HSA) Contributions
Similar to an FSA, your HSA allows you to pay for medical expenses with pretax funds, but there are some key differences, such as how much you can contribute, changing your contributions and more. For now, we’ll focus on the fact that since an HSA is essentially a bank account, you can only spend what’s available in the account. Think about how much you may spend on qualified medical expenses, and adjust your contributions to ensure you build up a sufficient amount. Your employer may offer matching contributions, so similar to your 401(k), we recommend at least contributing enough to get the employer match.
5. Update Your Beneficiaries
You may have done this recently for your health insurance if/when you went through open enrollment. The main benefit that gets missed is the 401(k), but you also want to ensure to update the beneficiaries for your life insurance, HSA and other financial products. Perhaps you had a relationship change, had a child, or experienced any other life event that could impact who you want to receive money and how funds should be distributed in the event of your death.
6. Set Up Autosave Through Payroll
Having a safety net of cash available is critical, especially during these uncertain economic times. One easy way to ensure that you’re putting money away is have funds from your paycheck direct deposited into a separate savings account. This should be as easy as adding the account to your online payroll profile or filling out a form for your payroll department. Havings the funds go right into a savings account allows you to stockpile cash without needing the discipline to manually do it yourself each time you get paid.
If you have any questions or other tips to share, please comment below.