#retirementplan

Use it or Lose it!

Year-end is fast approaching, and it is important to make sure that you are maximizing your employer benefits. Typically, many benefits reset at the end of each year, so here are some benefits to review before year-end to make sure you get the benefits you deserve.

1. Review Health and Dental benefits

If you have not done so, make appointments for annual checkups by year-end. For medical, this is good for a review of your overall health, especially as you age. For dental benefits, you often get things like two free cleanings per year, so make an appointment to at least get preventative measures done to reduce future costs. If you have an upcoming expensive dental procedure, you can start it now and use up the max benefit for 2020 and have the rest done in 2021 using the new benefits. This strategy can keep more money in your pocket!

2. Review your vacation time

Depending on the state you live in and/or your employers’ policy, some vacation time is not eligible for rollover, so make sure to not lose that time before year-end. If your employer allows you to roll overtime or get paid out, review your options now. Also, now is a great time to put in vacation requests for next year since many people delay doing this, and typically those that ask first are granted the time off first.

3. Use up your Medical Savings Account (MSA) by year-end

Your employer may offer a Health Savings Account or a Medical Savings Account. The Health Savings Account (HSA) can be rolled over so no need to spend the money, but the Medical Savings Account (MSA) must be spent by year-end or you lose the money you contributed!

4. Max out contributions to employer-sponsored retirement plans

If you are saving a lot towards retirement, review your contribution elections to see is you can max out your plan contributions for 2020 and plan for how much you will contribute in 2021.

As the new year approaches review your benefits to make sure you do not lose benefits you are entitled to before year-end. Now is also the ideal time to begin some planning for your benefits for 2021.

Happy National 401(k) Day

You started the week with Labor Day and get to end the week with Retirement – Happy National 401(k) Day! Now is the perfect time to make sure you’re taking full advantage of your employer’s sponsored retirement plan.

You can make pre-tax contributions to the retirement plan through payroll deductions. “Pre-tax” means that your contributions are deducted from your pay and contributed into your plan account before federal (and most state) income taxes are calculated. This reduces the amount of income tax you pay now. Moreover, you don’t pay income taxes on the amount you contribute — or any returns you earn on those contributions — until you withdraw your money from the plan.

Your retirement plan might also offer a Roth account. Contributions to a Roth account are made on an after-tax basis. Although there’s no up-front tax benefit when contributing to a Roth plan, withdrawals of earnings are free from federal income taxes as long as they are “qualified.” (Note: With Roth accounts, taxes apply to withdrawals of earnings only; withdrawals of contribution dollars are tax free.)

The decision of whether to contribute to a traditional plan, a Roth plan, or both depends on your personal situation. If you think you’ll be in a similar or higher tax bracket when you retire, you may find Roth contributions more appealing since qualified income from a Roth account is tax free. However, if you think you’ll be in a lower tax bracket in retirement, then contributing to a traditional pre-tax account may be more appropriate. A tax advisor can help you decide.

Employers are not required to contribute to employee accounts, but many do through what’s known as a matching contribution. Your employer can match your pre-tax contributions, your Roth contributions, or both. Most match programs are based on a certain formula — say, 50% of the first 6% of your salary that you contribute. If your plan offers an employer match, be sure to contribute enough to take maximum advantage of it. The match is a valuable benefit offered by your employer. In the example formula above, the employer is offering an additional 3% of your salary to invest for your future. Neglecting to contribute the required amount (and therefore not receiving the full match) is essentially turning down free money.

The IRS imposes combined limits on how much participants can contribute to their traditional and Roth savings plans each year. In 2020, that limit is $19,500. Participants age 50 and older can make additional “catch-up” contributions of $6,500 per year. [Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.]

An employer-sponsored retirement savings plan offers a tax-advantaged opportunity to save for your future. Participating in your plan could be one of the smartest financial moves you make.