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Give yourself a raise! Stretch
At Texas Children's Hospital
in Houston, 30 percent of the hospital's 6,000 employees participate
in flexible spending account programs. Arlene Hillegeist, director
of human resources services, says that many more employees could
benefit from these accounts, but they either don't know the options
exist or are wary about putting money into them.
One reason for the hesitation is the "use it
or lose it" rule under which these accounts operate. Until
recently, the money in a person's FSA accounts had to be spent during
a 12 month period. The Internal Revenue Service loosened that constraint
in May 2005 by allowing plan participants to make claims against
their accounts for up to two months and 15 days after the end of
their benefit year. Any money left in the account after that is
lost but if you plan conservatively and carefully, you can avoid
this loss. Check with your company's plan to see if it offers this
Health-care flexible spending accounts operate on
an individual basis, so you and your spouse may each contribute
to your own accounts. Your employer determines the maximum contribution.
Dependent-care flexible spending accounts operate
on a per-household basis -- up to a $5,000 per year maximum.
While companies are powerless against the limits the
IRS has set on some of the flexible spending accounts, they can
be creative with other pretax benefits such as transportation reimbursement.
benefits for traveling to work
to the IRS, transportation reimbursement of up to $190 per month for parking and
up to $100 per month for mass transportation and van pools may be made available
to employees. You must work for a company that has such a plan in place to have
these costs deducted from your paycheck before taxes.
Children's offers several tax-saving commuter options for its employees, who can
deduct a $50 monthly parking fee from their paycheck. Van pooling and bus passes
can save employees as much as $2,000 a year in commuting costs.
find out which of these and other money-saving programs your company offers, contact
your human resources department.
Retirement plans are another great way to stretch your paycheck. Your contributions
are made with pretax dollars. You're saving for the future while reducing today's
With 401(k) plans, employees can contribute
a portion of their salary to a company-sponsored plan. Many employers will match
a certain percentage of this contribution, in essence offering "free money"
to those who invest in the plan.
While it is difficult to
argue against socking away money for those golden days, it is also important not
to get too carried away with unrealistic visions of leaving the workforce at age
"If you're putting too much away in a 401(k) or savings
account, and you don't have enough to live on, and you're using credit cards all
the time, that is defeating the purpose," Lawrence explains. "If at
the end of the month, you are pulling money out of savings, you end up saying
to yourself, 'I'm not a very good saver.' There's a kind of psychological erosion."
out monthly and yearly expenses using tools such as "The Budget Kit"
can help you predict the cost of incidentals and determine how much money to put
into flexible spending accounts and retirement plans.
One of the most basic benefits
an employee can use is direct deposit. With this feature, your employer deposits
your paycheck directly in your account each pay period. Not only is it easy, it
makes other automatic payments simpler. Plus with automatic deposit, there is
generally no hold on the funds.
For example, if a $3,000 paycheck
is added to your account on the first of every month, you might also set up your
$250 car payment to be automatically deducted each month. This saves time and
eliminates the chance that you may forget to pay the bill and incur a late fee
or finance charge.
Regardless of whether you contribute $10
each month to a 401(k) or $100 to a savings account, plan out how best to allocate
your paycheck -- and then stick to the plan. You may find that some luxuries will
become more affordable than you had imagined.