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Investment Planning |
At Open Enrollment Time... Choose Wisely
In October and November of each year, many companies offer their employees the chance to change or update their benefits for the next year. Here are a few pointers for making your elections.
The maximum you can contribute to your 401(k) is $16,500 in 2010. If you’re over 50, you can contribute $22,000.
A Health Care Reimbursement Account allows you to pay eligible health care expenses not covered by insurance with pre-tax dollars. Calculate how much you think you’ll spend on medical, dental, and vision expenses, plus certain over-the-counter drugs, and elect to have this amount deducted from your paycheck. This is a "use it or lose it" account, so it’s better to underestimate your expenses and end up paying for extra costs with after-tax dollars than to lose money you’ve contributed by not spending enough.
Check your paycheck withholdings. You can do this anytime throughout the year. However, if you think you are not withholding enough, you have until December 31 to increase your withholdings and still avoid a penalty. If you think your paycheck withholdings are too high or too low, ask your tax preparer for a W-4 calculation and start next year off on the right foot.
Expecting a bonus? Recently exercised stock options? Withholdings on these transactions are often made at a rate lower than your marginal tax rate. The bonus withholding rate is 25% federal and 6% California, while the top tax bracket is 35% and 9.3% for federal and California, respectively. If your company allows it, increase your withholdings on these and other bonus payments.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.