If you’re fortunate enough to have a job that offers a steady paycheck, benefits, and perks, your benefits can add a substantial sum to your total compensation. Creating financial security and preparing for the future doesn’t always require hitting the jackpot. If you make smart decisions, exercise discipline, and tap into your resources, your employee benefits can be an additional source for wealth building.
Unfortunately, sometimes employees neglect to take the steps necessary to maximize their compensation and benefits package. You should reassess where you stand annually. We recommend taking a close look at all your available company benefits and making necessary adjustments at the end of each year.
Review Your Health Insurance
If you’ve been employed for a while, you know open enrollment kicks off every fall. Heading into the fourth quarter, it’s time to learn about your new health insurance options for the following year. When was the last time you looked carefully at the different offerings to evaluate your coverage against what you need and what’s available?
Depending on your choice, you might be surprised by the cost savings or new coverage enhancements. Are you selecting the best options for the upcoming year? Have there been pricing changes from last year? Are there better alternatives? Choosing the wrong-fit coverage could end up costing you a considerable sum.
This is also a good time to confirm everything is correct.
Review Your Withholdings and Deductions
While you’re reviewing things, take a look at your withholdings and deductions. Are your withholdings, contributions, and deductions accurate? Are you having too much money withheld from your paycheck, resulting in a big tax refund each year? If so, you’re basically loaning the government money interest-free. Those funds would be better invested where they can earn YOU interest. On the other hand, do you end up having to pay taxes each April? Avoid late fees and penalties by adjusting your withholding so that you don’t owe money to Uncle Sam at the end of the year. Did you marry, divorce, or gain a new dependent this year? Don’t forget to make the appropriate adjustments on your W-4.
Check Your FSA Balance
A flexible spending account (FSA) can be a great way to save money on your health expenses in a tax-advantaged way. In 2022, the contribution cap increased to $2,850, which means you could set aside this amount in your account before taxes. The catch is that these funds are “use it or lose it.” Do you have a plan to use your FSA balance by the end of the year? If not, now is the time to set doctor’s appointments, schedule procedures or treatments, or buy qualifying supplies.
During open enrollment season, you’ll have the opportunity to select your FSA contributions for next year. What are your expected health expenses next year? Consider your prescriptions, upcoming surgeries or treatments, wellness visits, dental work, and more. Check your benefits documents to determine what qualifies and ensure you maximize your FSA for 2023.
The tax deduction savings each year — especially if invested in the market — can add up over time, but it’s a total loss if you don’t use the money.
Inspect Fringe Benefits
Did you receive any non-cash compensation from your employer? If so, it’s considered taxable, and you may not have even realized it in advance. This may include anything from an employee recognition gift card, adoption assistance, access to a company car for personal use, or even wellness program incentives.
As employers compete for top talent, many employees gain higher salaries, bigger bonus potential, and premium fringe benefits. It’s important to be aware that much of this may be considered non-cash compensation, and you’ll need to pay taxes on the value of those items.
Did you receive a bonus this year? It’s possible that there could be tax implications beyond what you expected or that it may push you into a new tax bracket. For next year, you may want to increase your withholdings in anticipation of future bonuses.
The value of the benefit or the payout will be subject to taxation, so you’ll want to think about this as you sign your employment agreement and benefits paperwork each year.
Evaluate Your Employer Retirement Plan
The Department of Labor requires that you have the opportunity to make changes to your 401(k) and other employer-sponsored retirement plans at least quarterly. But how often do you check your contribution amounts, account balances, and investments? You should be doing it regularly throughout the year and take a closer look at the end of the year.
Are you taking full advantage of any available employer matching? If not, you’re leaving money on the table. Can you make an additional year-end contribution? For 2022, the contribution limit is $20,500, with the option to make an additional catch-up contribution of up to $6,500 more if you are 50 or older. Are you able to increase your payroll deduction contributions next year? Even a small boost can make a big difference in your retirement savings.
Review Your Final Pay Stub and W-2
Your final paystub should reflect what you will see on your upcoming W-2. The end of the year is a good time to check it for accuracy. This will give you time to dispute any errors or inconsistencies, and your employer will be able to make corrections or adjustments as necessary.
You’ll be getting your W-2 in January. You shouldn’t see any surprises if you’ve already reviewed your final pay stub. If there is an error, you should receive a corrected form, a W2c.
Double-check your gross wages, withholdings, deductions, and benefits contributions. Make sure everything adds up, run the numbers to estimate your tax return, and adjust your W-4 as needed for next year.
Position Yourself for a Raise
Think of your employer as a resource to tap into. If you offer higher value, you may be able to earn higher compensation. Whether your company has a formal review process or not, the end of the year is a good time to gather items you’ve accomplished over the year, the money you’ve saved the firm, and the occasions where you went above and beyond your job duties. This is the best way to demonstrate you are worthy of a bonus, raise, or promotion.
Plan for Next Year
Before the year ends, put a plan in place to get the most out of your total compensation next year. Taking the time to crunch the numbers now can pay off in the long run. Maybe 2023 is the year you will take advantage of the company’s tuition reimbursement to get an MBA or training dollars to cover a certification course that will increase your earning power. Will you max out your FSA to pay for your kid’s braces? Will you shoot for higher commissions, bonuses, or a raise?
If you have to work in exchange for compensation, you may as well make sure you are maximizing the value you take home. At the end of the year, taking the time to assess where you stand and what needs adjusting can significantly impact your path to financial security. A little extra effort to ensure you’re on track can go a long way toward achieving your goals, with your employer as your partner in success.
Kevin Stoddard is a LPL Financial Advisor with Stoddard Financial in Medfield, Massachusetts. Stoddard helps clients throughout New England to identify, plan, and execute strategies designed for securing their desired financial future. With their Financial Wellness @ Work program, they engage, educate, and empower employees by helping them to understand and appreciate the value of their benefits package.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.