How To Build Extra Wealth In Retirement By Maximizing Fringe Benefits
Most of us are concerned about what our life is going to look like when we retire. Are we going to outlive our money? Will there be enough to truly enjoy life and not just scrape by? What can I do today to plan for a better tomorrow?
Obviously saving and investing are two critical components to being able to live a happy retirement. Contributing the maximum amount to your 401(k) and participating in qualified retirement plans will help tremendously in growing that nest egg.
What many people don’t realize is that you may be able to build extra wealth in retirement by maximizing some of the fringe benefits programs that might be available by your employer. The key is to have a good understanding of what these programs offer, and whether or not you are eligible for them. These benefits programs are not uniform to all persons, so be sure that you check with your employer to see what is available specifically to you. Additionally, you'll want to ask if the benefit that you are interested in is taxable or tax-free.
Dependent Care Assistance Plans (DCAPs)
Dependent Care Assistance Plans provided by employers are intended to provide benefits to enable both spouses to work by reimbursing employees for daycare and other dependent care expenses. It may also provide an actual daycare center or similar arrangement.
Education Assistance Plan
An Education Assistance Plan pays or reimburses employees for expenses incurred in educational programs that are intended to improve job-related skills. Some plans may even provide assistance for education expenses if not job-related or for the education of the employee’s children or other dependents.
Adoption Assistance Plan
An Adoption Assistance Plan pays for or reimburses employees for qualified adoption expenses incurred in connection with the adoption of a child. The plan must be written and sponsored by the employer. Qualified adoption expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses while away from home, other expenses directly related to the legal adoption.
Stock Option Plans
Employers often use stock options as a vehicle for compensating executives. Stock options are typically granted at a favorable price, either below or at the current market value of the stock at the time of grant. Since options usually remain outstanding for 10 years, the executive benefits if the value of the stock rises above the grant price over that period. On the other hand, if the price of the stock goes down, the executive does not lose any money.
A Bonus Plan is a nonqualified plan in which selected employees receive cash incentives in addition to salary for achieving performance goals. They offer no tax deferral to employees, beyond the fact that payment is typically deferred until the end of the year, but they are generally deductible to the employer under the same rules as other cash compensation.
A Fringe Benefit is any compensation or other benefit received by an employee that is not in the form of cash. There are several examples of fringe benefits:
- Qualified employee discounts: employees may exclude from gross income certain discounts on purchases of the employer’s goods and services.
- No-additional-cost services: generally, no-additional-cost services are excess capacity services, such as airline, bus or train tickets, and may be provided to employees.
- Meals and lodging: the employer may deduct the cost of meals and lodging furnished to employees if the expense is an ordinary and necessary business expense.
- Qualified transportation expenses: the value of an employer-provided commuter highway vehicle for use between the employee’s residence and place of employment is not reportable as taxable income to the employee. This fringe benefit also includes the use of transit passes and free parking.
- Retirement planning services: the employer may exclude from an employee's wages the value of any retirement planning advice or information provided to the employee or his or her spouse if the employer maintains a qualified retirement plan.
- Athletic Facilities: an employer can exclude the value of an employee's use of an on-premises gym or another athletic facility that it operates from an employee's wages if the bulk of use of the facility during the calendar year is by its employees, their spouses, and their dependent children.
- Company Car Plan- employers often provide company-owned cars to employees. In a company car plan, the employer is the owner of the car and is entitled to deductions for depreciation, as well as for other expenses. The employee does not recognize income for the business use of the car but commuting or personal use of the car may be taxable.
Golden Parachute Plans
Benefits from Golden Parachute Plans are payable in the event of an actual takeover or merger resulting in the executive’s loss of employment, thereby providing financial safety nets for highly-paid executives who are displaced by mergers or takeovers involving their employers.
Legal Service Plans
Legal services may be provided to employees when needed through prepaid Legal Service Plans. These plans provide for the preparation of will and powers of attorney, personal bankruptcy, divorce, child custody, and defense of civil or criminal actions.
There are lots of great ways to maximize wealth in retirement if you are eligible to utilize some of these fringe benefit programs. Many people may not realize that these programs even exist, so be sure to speak to your employer about them today- you could put a lot of extra money in your pocket!