Health Savings Accounts
One of the most under-used tax benefits workers are eligible for is the Health Savings Account, or HSA. It lets you set aside pre-tax income to cover health costs that your insurance plan does not cover, helping to offset the cost of high-deductible health insurance plans. This year, the amount you can contribute has increased to $3,850 for individuals and $7,750 for families. In 2024, the contribution limits increase to $4,150 and $8,300. In addition, people over age 55 can add another $1,000 a year as a “catch-up” contribution. Your contributions are triple tax-free: there’s an immediate tax deduction for the money you put in, it can grow tax-free, and there is no tax when you withdraw the money for a qualified medical expense. Also, there is no use-it-or-lose-it deadline to spend. Any money not used this year can roll over indefinitely. Most workers are eligible to participate if they have annual health-care deductibles of at least $1,600 for an individual or $3,200 for family plans.
The amount you can contribute to a 401(k) retirement plan has also increased substantially this year, and you should consider reviewing your automatic payroll deductions to ensure you’re taking full advantage. For 2023, workers can contribute up to $22,500. That’s up nearly 10% from last year’s cap of $20,500. This applies to 403(b), 457, and other tax-advantaged employer savings plans. In addition, the catch-up provision for people over 50 has increased by $1,000 from last year to $7,500.
College Costs: More Than Just Tuition
If you have children or grandchildren, you know how expensive it is to send them to college. You’ve probably been planning for it for years, socking money away in 529 savings programs. Hopefully, you’re feeling pretty good about covering the cost of tuition, but don’t forget to budget for all the peripheral costs. Books and other supplies can run hundreds of dollars each semester. Whether you’re on a college-sponsored food plan or not, food adds hundreds more. And if the kids are off to some distant location, transportation costs to get home for the holidays can really add up. There are also social expenses. Your student is not sitting in the library studying every single night. Part of the college experience involves social activities, and that can add up too. What’s a parent to do? A lot depends on open communication and planning with your young adult child. Have plenty of conversations about the expenses they are likely to incur, how they might contribute to paying for some of it, and the dangers of running up credit card debt.
How to Reduce the Risk of Tuition Price Hikes
Speaking of paying for college, did you ever hear of the Private College 529 Plan? It’s a lot like a Traditional 529, but it lets you pre-pay tuition, thus locking in the cost for all four years, potentially shielding you from thousands of dollars in annual tuition increases. Princeton, Stanford, Duke, and nearly 300 other private colleges and universities participate in the program. If tuition is $40,000 for your student’s freshman year and the school hikes prices by 4% a year, you would save $5,000 by locking in prices at the first-year rate. Like a traditional 529 Plan, your money grows tax-free and is not taxed when you withdraw it for eligible expenses, even though the investment options are more limited. The big downside is that your student needs to be accepted at and go to one of the participating schools. If you have been saving into a Private College 529 Plan and your child does not attend one of those schools, you can change the beneficiary to another child.
Is That College Degree Really Worth the High Cost?
One more note about college: because of the huge expense that often requires taking on debt, there has been rising skepticism about the value of a college degree. However, according to a new analysis by Georgetown’s Center on Education and the Workplace, earning a four-year degree in your 20s is still the best path to get a good job by age 30. The study of more than 8,000 Americans found that a bachelor’s degree led to a better outcome than any of the 37 other factors considered. The data also showed that people who started college but did not finish by their mid-20s had only a 40 percent chance of landing a good-paying job by age 30. You can read the report’s findings here.
Subscription Fee Creep
Do you need to tighten the budget belt by a notch or two? Reviewing and cutting out some of the subscriptions that are on automatic renewal is a great place to start. A study by C+R Research found that the average American spends more than $200 monthly on these subscription fees. Nearly half of us still pay for subscriptions we’ve forgotten about and no longer use. Rocket Money, a personal finance tracker, lists streaming services, gym memberships, subscription boxes, and mobile apps as the most common culprits. Go line-by-line over your credit card bills to find out what you’re paying for, and then eliminate the apps and subscriptions you no longer need or use.
Shopping for a Mortgage
Finally, you’re likely to shop around for a new car or maybe even a new mattress to get the best price. But how about a new mortgage? According to the government-sponsored lender Freddie Mac, people taking out a new mortgage saved, on average, 0.10% if they applied to two different lenders. That may sound negligible, but it can add up to tens of thousands of dollars over the term of a 30-year home loan. Mortgage rates are pretty high right now, but lenders are struggling for business, and many are willing to negotiate with you if you haggle for a better rate. Consumer advocates suggest that home buyers get bids from three to five different lenders. While mortgage applications can reduce your credit score by a few points, any applications you make within a 45-day window count as a single inquiry, so shopping around for the best deal will not hurt your credit score any more than a single application will.