Are You Missing Easy Opportunities?
It’s easy to go fast in your day to day life and miss easy ways to save money. This may be anything from putting your frequent flyer number in when you buy a plane ticket, to not having a credit card that gives you some sort of cash back or alternative benefit. But it’s also easy to miss some of the low hanging fruit in your long-term savings strategy. Some of the items we find people have missed when they come in to see us for the first time can add up to quite a bit of money that has been left on the table over the years. Here’s a quick idea of a few of these items:
HSA Accounts. HSA accounts have been permitted since 2003, allowing people with high deductible health insurance plans to save (for 2019) up to $3500 for an individual and $7000 for a family in a special pre-tax account. The money can then be used to pay for out of pocket medical expenses tax free for life. This account does not have to be “spent down” and there are no mandatory required distributions like there are in IRA accounts at 70 ½. In the past, we have seen clients use these built up funds to pay for COBRA when they are unemployed, elective, non-health insurance covered procedures, and even Advil over the counter- all with no income tax paid. You can choose to use the money as soon as it’s in the account or save it for the future. It can be left in a cash equivalent, or possibly invested, depending on how you want to handle it. There are also lots of little benefits that can go with it as well. It’s important to know that it does NOT replace health insurance. But it can be a nice pot of money when you need it, and the tax benefits make it a great choice for many people.
Flex Spending Accounts for Child Care. Your employer may offer a plan that allows you to put up to $5,000 a year in a flex spending plan to cover your child care expenses. This account does have to spent down by year end, so unlike the other items mentioned in this blog, it will not accumulate. However, the amount of tax savings you may have because you took advantage of this could go into one of the other vehicles and accumulate. This is a frequently overlooked benefit but could be worth a nice chunk of tax savings to you, depending on your bracket.
IRAs. IRAs come in many forms and can get complicated as they each have their own set of rules. Your choices could be a deductible IRA, a non-deductible IRA, or a Roth IRA- all depending on your situation. As your life changes, and as the rules change, you probably need to change your IRA planning. It’s not something you can set in motion and just automatically do each year. Further, depending on what is happening with your income, Roth IRA Conversions are possible, and may look attractive to you- or not. IRAs can be great opportunities, and can add up to big savings, but you will likely need professional advice on them, in our opinion.
Missing Retirement Plan Increases. It is not unusual for us to meet with a new potential client who thinks they are maxing out their retirement plan, but it turns out they are not. While providers have gotten much better at communicating increases to participants, there is still much room for improvement. Be sure you are checking your contributions to your retirement plans each year and increasing those contributions when it makes sense to your savings and cash flow plan. After you do so, be sure to confirm it went the way it should have by checking your paystub for confirmation. You don’t want to wait until the year end, or later, to find out you didn’t put in as much as you planned. At that point, it’s usually too late to correct.
529 Accounts. We love 529s, but of course, they are not for everyone and you should make sure if you are putting money in them for future college costs you have your own retirement parachute on tight first. But if college funding is a goal, these can be some of your best options. These accounts will allow you to save for college, and you may get a state income deduction (it is limited) for your contribution. If the money comes out for qualified college expenses, it can be tax free. These accounts can be extremely helpful and have lots of little benefits and opportunities for flexibility, as well. They can be overlooked for planning for parents, but also for grandparents hoping to help the next generation.
Time is a gift and a curse. These little savings vehicles combined with time can be some of your best planned strategies. But they are also easy to ignore, and therefore completely miss the benefit. Be sure you are asking about them and looking into them regularly as your life changes with time.