01. How to get your employer to lower your tax bill

From Jon Scott, Lead Author

Surprise, the answer is two relatively well-known employee-sponsored plans: a 401K retirement plan and a Health Savings Account. This week, we’ll focus on the lesser-known one, which is a Health Savings Account (HSA). HSAs are part of a High-Deductible Health Plan (HDHP) offered by your employer, which allows you, the employee, to contribute untaxed dollars to your account. This means that maxing out your HSA contribution can reduce your tax burden by $3,850 for yourself or $7,750 if your family is on your health plan.

Additionally, 80% of employers offering an HDHP will match part of your contribution, meaning they’ll match the amount you contribute up to a certain amount. The money contributed to your HSA is eligible for a variety of medical expenses from a doctor’s appointment to even (dare I say it?) condoms.

Another benefit of the HSA is that the money contributed can be invested. Typically, you will contribute a certain amount to the account which will remain in cash, and all the dollars contributed beyond the liquid cash can be invested in the stock market. A family investing $600 a month (with some of that amount being the employer match) over a 30-year period with a 7% return (provided by investment growth) could have more than $700,000 in HSA dollars by retirement. Best of all, unlike a 401K plan there are no Required Minimum Distributions, meaning the government cannot force you to withdraw the money at a certain age.

To set up an HDHP with an HSA, simply select the option next time your company has open enrollment. If you are unsure your employer offers an HDHP, ask your Human Resources department (most large and medium-sized companies offer HDHPs). After you’ve selected an HDHP option, choose how much you’d like to contribute. After you enroll, you should receive a Health Savings Account card that you can use to pay for appointments or make purchases.

When tax time comes you will file an IRS Form 1099-SA where you list your total HSA distributions—your employer should have this document when tax time arrives. You may also need to file Form 5498-SA, which reports annual contributions to your HSA that you used to pay for medical expenses—this will generally be made available by your bank or health care plan provider.

02. How Far Are We From 2%?

From Bennett Fees, Economic Research Associate

Summary

• The Fed’s Official Inflation Target since 2012 has been 2%.

• The path to 2% is not straightforward both in terms of measuring inflation and how quickly we should get there.

• Most analysts expect the Fed to hike another 25 basis points at their next meeting which starts tomorrow.

• Anchored inflation expectations and hope for a soft landing make future monetary policy likely to moderate, and pause for some time.

Despite the frequency of how often the Fed’s 2% target gets thrown around, in reality, it is a fairly recent phenomenon that has evolved along with the Fed’s policy goals. Indeed, even when the iconic inflation fighter extraordinaire Paul Volcker’s term expired, inflation was still at 4%.

As for how quickly 2% may be reached, it’s important to recognize the variability between methods of measuring inflation. Even within the Fed’s preferred source for measures of inflation, PCE, there is not insignificant variability as seen in this graph from the BLS.

Importantly, the researchers found the most variability between PCE measures of inflation during periods of low inflation, something to consider as the Fed lowers interest rates while interpreting disinflation.

Luckily, in their Summary of Economic Projections from June 14th, we can see the FOMC’s view of where PCE and Core PCE (which excludes food and energy) will be over the next few years. The red line represents the median expectation.

From this view, the previous expectations predict headline PCE inflation to moderate quicker than Core PCE. The latter’s “stickiness” or resilience to decreasing has been a key factor that has concerned Chair Jerome Powell and analysts alike.

As for what other people expect, former Federal Reserve Chair Ben Bernanke expects one more quarter-point hike followed by no cuts in 2023, projecting the Fed to “take it’s time” as it balances mild recession risks and inflation. Similarly, investor projections have universally projected another quarter-point hike followed by a pause. That said, unless a severe recession takes place, it is likely that interest rates will stay elevated, at least compared to the recent policy, with FOMC projections placing interest rates at 3.5% even by 2025, a significant difference from the recent history of near-zero interest rates.

03. Using side hustles to double down on financial freedom

From Nate Hoskin, Founder & Lead Advisor

When it costs this much to live and eat, it feels like there’s never enough money to make a meaningful dent in anything. Whether it’s debt or retirement savings there’s never really enough to go around.

That’s why side hustles have become so popular and some of them are making people millions.

Here are three side hustle ideas that don’t involve buying real estate:

1. First, I would look at business listings in my city and I would specifically look for laundromats or car washes since they don’t require employees. This is an example of a quick search I did here in Denver. Buying a business seems like more than a side hustle, that’s why I’m thinking of aiming for businesses that are already profitable, require low overhead, and are a staple that won’t fluctuate with recessions. To make the initial purchase, I would work with the seller to do a seller-financed loan or pay them out of revenue for several years. If they say no, I would seek out an SBA-backed loan with favorable terms.

2. Second, I would start a “re-teching” business that helps dated companies catch up with the 21st century. Most of us have this skill set simply because we’re digital natives and know how to set up payment processing, CRMs, or scheduling links. I could find clients really easily because the moment I go to their website I would know if they needed my help! I could also drill down on a particular specialty, whether it is helping businesses build sales pages for products, getting plugged into Yelp and Google Business, or processing orders and payments more effectively. Believe it or not, there are still fax and check-only businesses that have operated this way for 60+ years and the action cost is really high unless they get help from an expert.

3. Third, I would make an interesting product for TikTok shop. I just bought a custom knife sharpener because I was able to support a small business and I have really nice knives that are uncomfortably dull (my chef friends are cringing I can tell). And I’m not talking about drop-shipping or using AliExpress, I would actually design and make the thing and get the added benefit of TikTok pushing my content for free! Because TikTok earns a small percentage per sale, they have been blowing up videos left and right simply for having the Shop links attached to the video. I have watched four of my fellow influencers quit their full-time jobs in the past month.

I am a huge fan of having a second stream of income to take pressure off of my 9-5 and add some cushion to my budget each month.