5 Year-End Money Saving Tips
Some benefits-related advice as we head toward 2018.
I don’t know about you, but it seems like this year flew by faster than usual. We’re already in the midst of the annual health insurance open season (the last day is Monday, Dec. 11), some of you are winding down the final days of your career, those who are staying are waiting for the announcement of the 2018 pay increase, and everybody seems concerned about a possible government shutdown.
Employees as well as retirees are certainly relieved that the year is ending with only positive changes to federal retirement benefits, thanks to the passage of the TSP Modernization Act. A 2 percent cost-of-living allowance for federal retirees goes into effect as of Dec. 1. (Retirees will see the increase in their December benefit, payable on Jan. 1, 2018.)
I thought now might be a good time to pass along a few tips that might make a difference to your end-of-year retirement planning:
Avoid taxes by saving in a health savings account. For 2018, self only enrollees in a high deductible health plan can contribute $3,450 tax-free to a health savings account. Self plus one and self and family enrollees can contribute $6,900 tax-free. If you’re turning 55 by the end of 2018, you can contribute an additional $1,000 tax-free to your HSA. For HDHPs under the Federal Employees Health Benefits Program, some of these contributions will come from a premium pass-through from the health plan. This means that participants will receive some of the contribution from the health plan as a credit to their accounts. The remainder of the contributions can be made either through payroll deduction, bank direct deposit, one-time transfer from an IRA, or by mailing a check.
Federal employees also should consider signing up for a flexible spending account for 2018 as well. The choices include a health care FSA or for those who enroll in a HDHP with an HSA, there is a limited expense health care FSA. There is also a dependent care FSA. The money contributed to an FSA account is not subject to federal, state, FICA, or Medicare tax, so you can save approximately 30 percent on your eligible health care, prescription, dental, vision, and child or elder day care expenses.
Design your own buyout. If you’re going to carry over the maximum annual leave into 2018 (240 hours for most federal employees) and you’re planning to retire in the 2018 leave year, you’ll be paid for all of the accumulated and accrued annual leave in your account after you separate or retire from federal service. Employees who retire at or near the end of the leave year can accumulate 200-208 hours of annual leave (if they’re in the eight-hour accrual category) by leave period 25 or 26.
Your payroll office will pay your leave balance at your hourly pay rate that you would have received if you could have taken the leave. For example, if your annual salary is $75,000, then your annual pay rate is $35.93 per hour. If you have a balance of 440 hours of unused annual leave (including unused restored annual leave, credit hours and compensatory time off ), then you would receive a lump sum payment of 440 x $35.93 = $15,809 (less federal, state, FICA, and Medicare taxes, as applicable). If there is an annual pay adjustment that takes effect in the new leave year, then the annual leave that would have extended beyond the effective date of the new pay rate would be paid at the higher rate. This payment is made by your payroll office within six to eight weeks following your separation—usually the pay period following your final paycheck.
Avoid the Medicare Part B surcharge. If you and your spouse are both federal employees (or one is a retired fed and one is still working), and one or both of you is over 65, then you can delay enrollment in Medicare Part B without a late enrollment surcharge as long as you are covered by health insurance through current employment. The 2018 Medicare Part B premiums range from $134 to $428 per person per month, depending on your modified adjusted gross income in 2016. This is in addition to the premium that you pay for your FEHBP plan.
If the retired or retiring spouse is carrying the FEHBP coverage, enrollment in Part B can be delayed without penalty by transferring the FEHBP coverage to the active employee. But remember, timing is everything. To retain future rights to reenroll in FEHBP, there can’t be a gap in coverage of even one day between the retiring employee’s cancellation and the active employee’s enrollment. A retiree who receives their retirement benefit from OPM will have their open season cancellation effective on Jan. 1, which means the active employee should use a qualifying life event rather than an open season change to enroll in FEHBP to indicate the effective date of the change to coincide with the effective date of the cancellation.
If you or your spouse is not yet retired, but retiring at the end of this year, then the spouse who is going to remain employed can make an open season election to enroll in FEHBP. The spouse who will be retiring should have a retirement specialist at their agency prepare a cover letter to inform OPM that their health insurance coverage is being canceled effective Jan. 7 (or the effective date of the open season change). They should also include a copy of the employed spouse’s open season change to self plus one or self and family enrollment. Communication is key to the success of this money-saving move.
Change your TSP allotment. If you’re under the Federal Employees Retirement System, it’s important to update your Thrift Savings Plan allotment at the end of the year to avoid missing valuable matching contributions from your employer at the end of next year. The elective deferral limit for 2018 has been set at $18,500. That’s the maximum contribution that can come out of your paycheck (although employees who are 50 or older by the end of 2018 can make additional unmatched “catch-up” contributions of $6,000). The matching is on a biweekly basis, so if you contribute the maximum of $18,500 before the last pay period of 2018, you’ll miss out on valuable matching.
For example, if your biweekly salary is $3,000, you automatically will receive a 1 percent matching contribution of $30 from your agency, but to get the full 4 percent match, you’ll need to contribute $150 (5 percent of $3,000). According to Dan Jamison, author of the FERSGUIDE, employees will have 27 pay dates in 2018 if they receive their payroll from the National Finance Center or the Interior Business Center. Those whose payroll processing comes through the Defense Finance and Accounting Service or the General Services Administration will have 26 pay dates in 2018. If your paycheck is not delivered via one of these sources, check with your payroll office to find out the number of pay dates in 2018.
If you have 27 pay dates and wish to contribute the maximum $18,500 in 2018, your biweekly allotment would be $686 per pay period. If you have 26 pay dates then the allotment increases to $712. You can make catch-up contributions at any time of the year.
Request a cushion of cash from the TSP. If you want to be sure you don’t run short of cash as you transition from employee to retiree, you may wish to consider a TSP loan. It can tide you over from the time after your last paycheck is paid to when you begin to receive payments from your retirement benefit, lump sum payment for unused annual leave, Social Security benefit, paycheck from your next job or your post-separation distribution from the TSP. It is recommended that you delay your request for full or partial TSP distribution (using TSP Form 77 or TSP Form 70) until at least 30 days after your separation from federal service.
Your loan must be closed within 90 days of the date when your agency reports your separation to the TSP. Within that timeframe you can repay your loan in full, partially repay it and receive a taxable distribution on the remaining outstanding balance, or receive a taxable distribution of the entire outstanding loan balance.
Photo: Flickr user Frankieleon