Save Mo’ Money!

As we head into the end of the fourth quarter, I’m starting to look at data and trends during 2014 -- especially as they relate to savings opportunities we have here at Viget.  In addition to our 401(k) plans (we have both a Roth and a Traditional plan), we have a Health Savings Account available to those who participate in our high-deductible health plan (HDHP).  For these plans, Viget provides incentives to encourage participation:

• Viget matches up to 4% of all 401(k) contributions.
• Viget matches the HDHP annual deductible for employees ($1,500 for singles and $3,000 for families).

There are opportunities, however, for employees to benefit from additional savings in each area -- up to the respective annual IRS cap.  Let’s take a look at the data and see if they are.

Retirement Plan Snapshot

We have 65 eligible 401(k) plan participants here at Viget -- and a 98% participation rate, which is fantastic.  As noted above, Viget does provide a company match up to 4% (one has to participate at a rate of 5% to get the full match) for participation in either of our two retirement plans.  Consistent with national trends, thirty-six percent (36%) of our staff participate in the Roth plan. The majority (64%) participate in our Traditional plan, which provides for tax-free deductions at time of deposit. But, how many are saving more than the minimum required for the full match?  How many are saving toward the IRS cap of $17,500 (or $23,000 for those over 50)?

Survey says …

• 36% of eligible staff save just 5%. 
• 3% of eligible staff save less than 5%, so they are foregoing free matching money.
• The average 401(k) contribution in both plans is 8%, consistent with the national average but consistently less than experts believe is an adequate rate for retirement planning. 
• Just 5% of eligible staff are saving at a rate to hit the IRS limit.

According to numerous surveys and pronouncements in the press, younger people in the workplace are not saving enough.  But, that’s the big question, isn’t it?  How much is enough?  There are so many variables in play that it’s very difficult to predict how much one will need for retirement -- but, I think we all can agree that if you save all that you can while you are younger, you benefit from the time value of money AND may have the luxury of fewer financial obligations during your early working years (e.g., children, mortgages, elderly parents).  I encourage everyone to step up their 401(k) contributions -- unless you are already socking away additional savings into other investments.

Health Savings Account Snapshot

We have 60 HDHP participants who are all eligible to contribute to their HSAs on a pre-tax basis through payroll deduction.  For singles, this equates to $1,800 each year. For those who participate as families, the amount is $3,550 each year.  (These figures take into consideration the money Viget has already contributed to each HSA.)  By contributing to one’s HSA, one reduces one’s taxable income and sets aside money to be used for health-related expenses -- defined by the IRS in Pub 502.  These expenses can be accrued any time in the future, so it’s an opportunity to “bank” money against future health costs (for you and your family), even if one is healthy now.

Survey says …

• Only 25% of our eligible staff contribute any money to their HSAs each month.
• Only 13% of our eligible staff max out their contributions to the IRS limit.

While Viget is contributing twice the average employer contribution to HSAs, only a small percentage of our staff is reaping the full benefit of tax-free contributions and withdrawals allowed by the IRS.  I encourage our staff (and you, if applicable!) to reconsider this option for 2015, even if one participates but doesn’t shoot for the cap itself.

Summary

As Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.”  Let’s save as much as we can tax-free or tax-deferred through HSAs and Traditional 401(k)s.  If we take advantage of tax code opportunities now, we'll feel more secure about how life will be in our golden years.