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It may seem like the Fourth of July weekend was just a couple of months ago, but now 2023 is only three weeks away. It’s the season of lists! Make ’em once and check ’em twice! While you’re making lists, be sure you’ve got a year-end financial checklist. To get an idea of what should be on that list, the Federal Drive with Tom Temin spoke with Abe Grungold, financial adviser and retired federal Senior Executive.

Interview transcript:

Tom Temin: Abe, good to have you back.

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Abe Grungold: Thank you for having me on again.

Tom Temin: Well, let’s get right into it. What should be on someone’s list for financial wellness, financial well being coming up in 2023, let’s talk about TSP contributions.

Abe Grungold: Certainly before federal employees should be heading to holiday Christmas party be thinking about the increase to TSP contributions, which the law has changed this year for 2023. And a federal employee who’s under the age of 50 years old, can contribute $22,500 per year, and a federal employee who’s over the age of 50, can contribute $30,000 per year, and these numbers are increased from 2022. And it’s a great opportunity to get this done before 2023 begins.

Tom Temin: And would you also say it’s a really good time to increase TSP precisely because the funds are low, you’re buying low, you’re buying at the bottom.

Abe Grungold: Yes, you’re doing something called dollar average cost investing, you are buying shares at various prices as the market goes up and down. And now it’s an excellent opportunity for you to be buying these shares at a lower price point. And doing this helps you to increase the value of your portfolio as you get closer to retirement.

Tom Temin: All right, so once again, under 50, up to 22.5 and over 50, 30,000.

Abe Grungold: Yes. And as federal employees always think about per pay period, for the under 50 age employees, it’s $865 per pay period, and the over 50, it’s $1,153 per pay period. So it is an increase. And if you can afford to do it, that’s the most important thing. If you can afford to do it, it’s to your advantage to maximize your contributions.

Tom Temin: All right, so maybe skip that electric Cadillac and get something for half as much than the difference could be your entire TSP contribution for the year.

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Abe Grungold: Yes. And look, the key to being a TSP millionaire is to maximize your contributions and to invest as aggressively as you can tolerate.

Tom Temin: All right, and then we’ve got the flexible spending account, there have been some federal rule changes in that for 2023. If you can still get in on the changes.

Abe Grungold: Yeah, the flexible spending account is a wonderful benefit that federal employees can take advantage of setting aside money for either dependent care for a child under the age of 14, or for health benefits, such as going to the physician or paying for medicines. So you’re setting aside this amount of money during the year, and it helps to reduce your tax liability. So there’s been an increase to the federal spending account contribution. And that has increased $200 to a maximum of $3,050 per year.

Tom Temin: That’s like eight pairs of glasses.

Abe Grungold: Yes, and it really, it really helps it can reduce your tax liability significantly. And I always took advantage of this benefit, it really makes a difference. And if you still have money left over at the end of the year, you still have a period of time into the following year to use that money up. So you don’t have to worry.

Tom Temin: We are speaking with Abe Grungold owner of AG Financial Services and a retired 36-year federal employee and on the tax front. I mean, it’s pretty straightforward for most federal employees, but if your spouse is employed, you might have to do something with your W-4 withholding form.

Abe Grungold: Yes, this is very common for federal employees who get married or a federal employee who has several jobs, they might have their full time position with the government. And maybe they teach on the side or they do some other type of work on the side outside of the government. So you have to make sure that you are having enough tax taken out of your payroll. And if you have a second job outside of the government and you’re getting a 1099, you’re not paying enough tax. If your spouse has a position who is working, maybe the two of you are not paying enough tax. So this is the time of the year to make a change in your W-4. And you can do that through your payroll department or you, some employees are able to do it online. But this is a very important thing. It happened to me. When I was an active federal employee that I had several jobs outside of the government, I was earning some money here and there, and then I realized I wasn’t paying enough tax.

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Tom Temin: Yes, if you have regular 1099, you can also make quarterly estimated payments, and that’ll reduce that surprise bite possibly at the time when you prepare your taxes.

Abe Grungold: Yes, quarterly estimated taxes are a good thing to do. But you really need to fill out a tax return. And then you get that information after you’ve submitted your taxes. But the W-4, you can get ahead of it. You can get ahead of it to say you know, I’m getting married, or I think I’m gonna be teaching next year, I need to make additional tax payments through my W-4. And it’s easy to do, it’s easy to do.

Tom Temin: And then what about annual leave? Use it lose it? How do those rules work? And what should you be doing at this time to make sure you’re not losing anything in next year’s 2023 period?

Abe Grungold: Yes, annual leave is something where you need to calculate the amount of vacation time that you’re still going to earn through the end of the year. And if you exceed 240 hours, you have the risk of losing that annual leave. Now for Postal employees, they’re allowed to accumulate 560 hours of annual leave. So they have a higher threshold to reach. But most, most federal employees have the 240 hours. So if you are going to reach, say, 248 hours before Dec. 31, you need to take a day off before that happens, or you’re just going to lose that day.

Tom Temin: And let me ask you in the larger sense, what kinds of financial thinking should people do as the year end approaches? A lot of people want to talk about maybe paying off some debts they might have, say a car loan or a home equity loan, that kind of thing. Good idea to start planning that now?

Abe Grungold: Tom, that’s an excellent question. With inflation today, federal employees and federal retirees really need to look at their budget for next year, not just for their mortgage, but how much are they spending on gas commuting to the office? How much are they spending on all their utility bills, because with inflation and the rising cost, everything is just going up next year. So you should really prepare a budget for 2023. And try to get a better handle on your expenses to see where you need to make some adjustments.

Tom Temin: So don’t just make a budget but be prepared to stick to it.

Abe Grungold: Yes, that’s very hard to do. Because many things come up during the year, you know, you have a car issue where you need to make a car payment to repair it, or you have a medical issue, and you have a medical payment that’s just not planned for. So you need to have a cash reserve. You need to have a cash reserve to plan for those unforeseen events.

Tom Temin: So budget for that too, then.

Abe Grungold: Yes, it’s very important to have a cash reserve. And I hate to say that federal employees may be faced with a federal furlough coming up in mid-December, and they need to have a cash reserve to carry them through the federal furlough. It could be a day, a week, a month, who knows, and they need to have a cash reserve to help them through this period.

Tom Temin: Well, let’s hope Congress acts but be ready, in any case, Abe Grungold is owner of AG Financial Services and a retired 36-year federal employee. Thanks so much for joining me.

Abe Grungold: It’s a pleasure to be here, Tom. Thank you.

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