Did you know there are many steps that you can take to save money via your employment? Some of these strategies work by allowing you to pay for things with pre-tax money, which could up to 40% (depending on your tax bracket) right back into your pocket. Others provide benefits through your employer that are not taxable to you on your individual income tax return, again reducing your tax liability.
Saving through Pre-Tax Contributions
There are several ways you can save money at work by paying for things out of your gross income (that is your pre-tax income). Perhaps the three most significant pre-tax expenses you can pay for through your employer are 401(k) contributions, medical flexible spending accounts (“FSA”), and dependent care reimbursement accounts.
You can make retirement contributions to either an employer-sponsored 401(k) plan or to a traditional individual retirement account, tax-free. In addition to saving money in the short run by decreasing your taxable income, you’ll be building a nest egg for your later years. You will pay taxes when you take money out of the account, but we always suggest to defer taxes when you can.
In addition to contributions to a retirement account, the regulations of the Internal Revenue Service also allow for both medical flexible spending accounts and dependent care reimbursement accounts. With these types of accounts, you contribute pre-tax money, effectively securing a discount on eligible medical or dependent care expenses.
Saving through Nontaxable Benefits
Pre-tax expenses are not the only way your job can help you save money, however. The Internal Revenue Service allows employers to provide their employees with many benefits that are not taxable to the employees.
Here are several benefits your employer can provide, which you do not need to report on your individual tax return:
- Employer-paid health insurance premiums;
- Employer-paid parking, to a maximum of $240 per month;
- Health club access for a gym on your employer’s property;
- Employer-paid educational classes, up to a maximum of $5,250; and
- Employer-paid life insurance coverage, up to a maximum of $50,000 in benefits.
You might be surprised at the number of savings opportunities you can leverage from your employer. In addition to providing a paycheck, your employer can improve your financial condition in many other ways. And over the course of a career, the savings can really add up. It may be time to talk with your employer about providing some of these benefits.
By the way, if you own your own business and set your business up properly, you can be the employer providing yourself with these benefits. Contact us to discuss the possibilities.
This article is a service of Gratia P. Schoemakers, Personal Family Lawyer®, who develops trusting relationships with families for life. That’s why I offer a Family Wealth Planning Session,™ where I can explain various financial tools and other alternatives to help identify the best strategies for you and your family. You can begin by calling our office today to schedule a time for us to sit down and talk because this planning is so important.