Smart Things to Do With a Year-End Bonus

Despite the pandemic, two-thirds of U.S. employers still plan to offer their employees year-end bonuses. If you work for one of those companies, it is wise to come up with a thoughtful plan for the extra cash. If you need more time to consider your options, deposit the money in a savings account. It will be harder to chip away at it if it’s not connected to your debit card. Here are a few other suggestions.

Account for taxes. If your employer doesn’t withhold taxes from your bonus, or doesn’t withhold enough, make sure to set aside money to pay them. 

Increase your bonus’ value. Contributing the maximum allowed to a pretax employer retirement plan can make your bonus go farther than using it as after-tax dollars, especially if your employer matches the contributions. If your income falls within IRS guidelines, you may be able to make pretax contributions to your 401(k) and a traditional IRA or add post-tax contributions to a Roth IRA, which will grow tax-free.

Put your money to work. Since a bonus is extra money, it may be easier to use it for an investment with long-term growth potential or to rebalance your portfolio by introducing new money rather than selling stocks.

Build your emergency fund. Everyone should have liquid savings available to cover six months’ worth of living expenses when the unexpected occurs. If you keep your fund in a savings account, be sure to shop around for the best rates, or consider a short-term CD.

Invest in yourself or loved ones. Many of the most successful people continually pursue knowledge and increase their skills. You might take a coding course, learn a language, hire a health coach, pay for a professional certification, or enroll in a public speaking program. If you have a child or grandchild, you could contribute to their 529 plan.

Plan an experience. Research indicates great memories often provide more satisfaction than purchases. In the midst of a rough winter, planning a future vacation can give you something to look forward to. 

We’re here to help you reap the rewards of your success and build a brighter tomorrow. Call our office to schedule a time to discuss what you want to accomplish in 2021 and beyond.

We do not provide tax advice; coordinate with your tax advisor regarding your specific situation.