Did you know that in a recent survey more than 90% of companies increased the amount of money allocated for performance-based bonuses for 2015?
Instead of salary increases more companies are issuing higher bonuses. This means the responsibility is yours when it comes to ensuring your well-deserved bonus is allocated properly.
Many celebrate the influx of cash with "splurge" trips and material items. Yet, they don't think about the impact those extra dollars can have on their financial life.
Here are three key points to consider:
- Tax implications- bonuses are taxed the same way as your regular income but the withholding may be different. Consult your HR/payroll department to understand how your company handles bonus withholding and what may benefit you the most.
- Add to retirement- you may be able to add to your 401(k) plan but be sure to check with your employer to see if bonus contributions are allowed. You can also contribute to a ROTH IRA or a Traditional IRA even if you are contributing to your employer 401(k). Consult your financial advisor about choosing the right type of IRA for your situation and what investment choices are suitable.
- Pay off debt- if you have high-interest debt from credit cards or personal loans your bonus money should go toward paying off the balance. However, not all debt is bad such as low-interest student loans or mortgage. Review this with your advisor to understand the trade-offs.
Caroline Hill, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).