How to Max Out Your Benefits By the End of the Year

As the holidays approach, money tasks may take a back seat to more festive pursuits. But these remaining weeks of the year offer an important opportunity to maximize your employee benefits and fine-tune your finances. 

Here are some items for your year-end financial checklist:

Adjust Your 401(k) Contribution

If you plan to max-out your 401(k) for the year, check now to see how close you are to meeting that goal. The contribution limit for 2023 is $22,500, with an extra $7,500 in catch-up contribution allowed for workers age 50 and up.

It generally takes between one and two pay periods for any changes to your 401(k) contribution rate to take effect. So if you find you’re running short of your goal, now is the time to make an adjustment. (While many companies hold their annual open enrollment periods in the fall, 401(k) contributions aren’t part of that—you can typically adjust your rate at any point during the year.)

Going forward, avoid the last-minute math by pacing yourself to maximize at year-end. Plan administrators like Fidelity and Vanguard offer online tools that calculate how much to deposit each pay period to maximize by the end of the year.

High earners who max out their annual 401(k) contributions should generally aim to parcel out contributions across the entire calendar year. Otherwise you could lose out on matching funds by maxing out your contributions early. The exception: there are some employers who offer so-called true-up contributions, which at year-end reconcile how much you’ve contributed with how much they owe you under their match formula.

Even if you can’t max out your contributions—only about 15% of plan participants do, according to Vanguard—you can still use this time to test out a higher contribution level. Say you’re depositing 6% of pay to your 401(k) and want to work your way up to 10%. You could try out 7% or 8% for a couple months. “November and December are a great time to take incremental steps toward your savings goals for next year,” said Edward Gottfried, senior director of product management at Betterment at Work.

Check Your Withholdings

It’s not too late to check how much income tax is withheld from your paycheck to avoid any surprises at tax time next year. About 70% of taxpayers withhold too much every year, resulting in a refund, according to the Internal Revenue Service. On the other hand, those who don’t have enough withheld could face a surprise tax bill for 2023. 

You can check your withholdings with the IRS’s online tax withholding estimator. 

If you earn income that’s not subject to withholding, such as from gig work or rental property, you can make quarterly estimated payments to avoid owing a balance or possible penalties at tax time.

Spend Down Your FSA Money

It’s time to spend down any pretax money you have in your flexible-spending account (FSA) on qualifying medical expenses. Money in FSAs is use it or lose it, so you have to deplete your funds by a certain time—often, by the end of the year—or forfeit the remaining balance. Some employers allow you to roll a portion of the funds over until early the following year. The maximum rollover amount allowed for 2023 is $610 for plans that offer that flexibility. 

Sunscreen and contact solution are among the many over-the-counter products you can buy with FSA funds. 

If your employer offers reimbursement for certain gym or other expenses, make sure to submit your receipts by the deadline to take advantage of the benefit.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com