Transcript: CIBC US Financial Toolbox podcast, Episode 7 — Demystifying new job paperwork
Introduction: Welcome to Financial Toolbox, a podcast series sponsored by CIBC Bank USA that understands that financial wellness is not innate, it’s learned. Whether you’re a member of the next generation wanting to start your financial journey out strong or you’re a lifelong learner looking to improve your financial standing moving forward, our team of experts are here to equip you with the information you need to help make your financial ambitions a reality. This episode was originally issued in June of 2024 as part of the Wealth Planning Illuminated series presented by CIBC Private Wealth. Since its original broadcast, some of the dollar amounts referenced in the podcast have been adjusted for inflation or have changed under the law. These instances include, in 2026, the amount an individual can contribute to an employer-sponsored retirement plan like a 401k or a 403B is $24,500. If you are 50 years old or older, the catch-up contribution in 2026 is $8,000, or if you are between the ages of 60 to 63, that catch-up amount is $11,250.
Also, the amount that can be contributed to an individual retirement account is $7,500 in 2026, and the catch-up contribution for individuals 50 years old and over is $1,100. Lastly, the federal limit for contributions to a dependent care flexible savings account is now $7,500 instead of $5,000. And now for the episode.
>> Theresa Marx: Hello, and welcome to another episode of Wealth Planning Illuminated. I am your host, Theresa Marx, a senior wealth strategist at CIBC Private Wealth in the US. I am joined today by my colleague, Amanda Regnier, also a senior wealth strategist at CIBC Private Wealth. In today’s episode, Amanda and I will discuss new job paperwork with a focus on the tax and benefit elections you may need to make when starting a job with a new employer. Okay, let’s get started. I recently had someone ask me about her new job paperwork. She’d been working with her prior employer for a long time and was just a little overwhelmed by all the forms and decisions to make. I thought it might be helpful to many people, whether just starting out in the workforce or making a move for the first time in a while, to walk through the various tax and benefit elections that often come with starting a new job.
Amanda, let’s start with everyone’s favorite topic, taxes. Where should we start when thinking about taxes and starting a new job?
>> Amanda Regnier: Well, you’re right. Taxes are my favorite topic. And if you’re listening to this, congratulations on your new job if you have one. So the IRS has set up a form, surprise, surprise, called the W4 to capture your tax information. What’s interesting about the W4 is you have a little bit of flexibility in how you fill it out. It’s not strictly a right answer, wrong answer kind of form. So your opportunity in the W4 is to show your employer how much you want withheld from each of your paychecks as you’re getting paid throughout the year. Of course, you must aim to withhold at least enough to cover your tax liability. You can’t opt out of withholding, but in your W4, you have some flexibility to account for, for example, your spouse’s income or income from another job or any other additional withholding that you want to have done.
It walks you through the form and it gives you an opportunity to talk about other income that you have, spouse’s income, second job, the size of your family, dependents to calculate the amount that you should have withheld. And you have a blank space where you also can opt to have additional withholding done. So if you know that at your old job, you were getting paid about the same and last year at tax time, you owed some money and you didn’t like how that felt. You can use the additional withholding to withhold extra and aim to break even at tax time or get a refund. So there are wizards online that you can use to help you fill out your W4. You can talk to your accountant, you can talk to your advisors, but this is really your first opportunity to tell your employer what your estimated tax obligations are going to be.
And they use that to automatically withhold the taxes from each of your paychecks so that when you go to pay your taxes in the following April, you’ll have a statement from them called the W2. And one of the boxes is going to say, “This is how much we’ve already withheld.” You use that when you’re preparing your taxes or your accountant uses that when preparing your taxes so that you can see if you’ve already paid into it enough or if you’ve got an outstanding responsibility or if maybe you’ve paid so much that you’re going to get a refund back and then you can decide that year if you want to adjust your withholdings, maybe you got a really big refund and you would’ve preferred to have that money in your paycheck week by week, you can dial down your withholdings a little bit. So it’s a really important sort of first form that you will get from your new employer.
>> Theresa Marx: So it sounds like if you fill it out for, let’s say, 2024 and we get to April 2025 and it was like, oh, I was a little bit off one way or the other. Maybe I withheld too much or withheld too little. Then you can go back to your employer and say, “Okay, for this year, I want to adjust that a little bit to right size it.” So if you don’t get it right the first time, it’s not the last time that you can look at that form.
>> Amanda Regnier: That’s exactly right. And the IRS publishes their own estimator to help you navigate the W4. It’s called the tax withholding estimator. It’s on IRS.gov. So it’s come a long way in helpfulness for taxpayers to use to think about their tax withholding choices.
>> Theresa Marx: So Amanda, you sit in New York, I sit in Illinois, both of us pay state income taxes. So how does the W4 work for state income taxes?
>> Amanda Regnier: So you may get a state specific version of the W4 to fill in to help you estimate your state withholding responsibilities. And your employer has a responsibility to hold those taxes back as well. So it’s in their interest to try to make sure you get it right. And then that’s another thing that may factor into your federal income tax liability because there’s a little bit of a deduction for state taxes. So that’s something that after the first year you may go ahead and adjust in terms of your federal withholding because you can reflect that as a deduction.
>> Theresa Marx: Okay, makes sense. So when looking at maybe your first paycheck, you look at it and you see the taxes come out, but there are other withholdings that sometimes we’ll see on a pay stub. So can you talk to us a little bit about those as people are starting to think about their new job?
>> Amanda Regnier: Sure. You’re right. I think you open up that envelope, you see your first pay stub and then you might say, “Hey, who the heck is FICA and why are they getting my money?” And that’s an acronym for Federal Insurance Contributions Act. You might see it. You might see some other acronyms like OASDI, Medicare gets rolled into the FICA. These are all withholdings for social safety net programs that are administered by the federal government. So OASDI is what’s commonly known as Social Security. Every worker’s got an obligation to pay in, your employer is paying in as well. The good news on that one is it is capped at just under $10,000. So it’s supposed to be 6.2% of your wages, but the maximum annual contribution is $10,000. So depending on what your pay rate is, you may get to a point in your paycheck year where that falls off, that deduction falls off and your pay gets boosted a little bit right in time for the holidays usually to do some of your shopping.
So that’s something that will definitely be on your statement. You might see things like if your state requires that you have disability insurance or family leave insurance, you may see some line items for that that you either must pay into or that you may opt into, and those will come out as well. Not usually a ton of flexibility in those. They kind of are what they are.
>> Theresa Marx: So kind of almost like a defined amount that’s going to come out of each paycheck, unlike the income taxes where you can choose how much is being withheld, these are, as you said, what they are.
>> Amanda Regnier: Exactly. Yeah.
>> Theresa Marx: All right. Let’s switch gears a little bit from what we’re paying out to maybe what we’re getting from a new employer. So thinking about benefits. And I think the first one that often comes to people’s minds when they’re thinking about a benefit from an employer is a retirement savings plan. So you think about a 401k or a 403B or a similar type of plan. So can you walk us through what those are and what we should be thinking about as we’re opting into different programs?
>> Amanda Regnier: Sure. I’d love to. I think we could do an entire podcast just on pre-tax retirement withholding elections, but try to keep it short and sweet here. You’ve got a couple of different main types of retirement savings opportunities. You can have a pre-tax plan or a post-tax plan. Hopefully your employer offers some of these. If not, it’s possible to set them up yourself, but most places offer at least a pre-tax plan, like you said, a 401k or a 403B. So it’s got a couple of different really nice features. Let’s say you are making $100,000 a year to keep it simple because doing math out loud is not as much fun as doing a podcast, and you want to set aside $20,000 of your income for retirement. Now, when you go to do your taxes at tax time, your taxable income is $80,000 instead of $100,000. So you’ve avoided taxation for now on that $20,000 that you’ve set aside, and you’ve likely gotten yourself into a slightly more favorable tax rate on the money that you are accountable for paying taxes on that year.
So it reduces your taxable income, it can lower your marginal rate, and then that money grows in a plan tax-free. You’ll be able to make some elections. You can choose a target date retirement fund where there’s going to be a mix of stocks and bonds and different mechanisms to help you grow, but it will grow until you are obligated or you choose to start taking the money out, whichever comes first. And then at that time, it’ll be taxed like an ordinary paycheck because it is a paycheck. It’s just a paycheck that’s been on hold for you for many years. So you get that unbeatable power of compound interest on no tax money. So it’s able to grow and grow and grow, and then you take the money out when you’re in retirement. And the idea is when you are retired and you’re not working at your high paying job anymore, you’ll be at a lower tax rate, or maybe you will have retired to a state that has more favorable state income tax rates, and you’ll be able to enjoy that money at a lower tax rate.
So you have the opportunity to set aside as little as zero, which we certainly can’t recommend, or as much as $23,000 in a pre-tax retirement account. And if you’re over 50, you can actually set aside an additional $7,500 there. So that’s sort of the baseline type of plan that people tend to get into. It’s the ordinary thing. And a lot of employers will match your contributions, which is just gravy. They might match a hundred percent of your contributions up to 6% of your salary, something like that. There’s usually a formula that they’ll match. So you’ll be able to go in and see your retirement account growing, and you’ll be able to see your contributions, your employer’s contributions, and then the performance, which hopefully over time is positive. We say it’s kind of like weighing yourself. Don’t check every single day. You’ll drive yourself crazy because there are going to be dips in the market, but overall, the stock market tends to return for investors.
So in the long term, you will hopefully grow that money. And of course, the earlier you start, the better. It is really hard to make up for lost time with retirement contributions. So the best thing you can do for yourself is start setting aside something. If this is your first job out of college and you’re a new young employee, it’s tough. You’ve got to make the rent, you want to do the trips and have your fun, but the best thing you can do for yourself is force yourself to set aside a little bit and give it 40 years to grow tax-free. You won’t be sorry if you do that. And then-
>> Theresa Marx: Go ahead. I’m sorry. I think to your point, for the employer match, even if you can’t max out your 20,000 plus a year, at least thinking about, okay, if my employer’s going to give me 3,000, then I should at least give 3,000 to maximize what the employer is giving me. Otherwise, you leave dollars on the table that the employer would otherwise give you.
>> Amanda Regnier: Yeah, you’re missing free money right there. So you should at least contribute enough to get the match from your employer. Absolutely. Great point. There are also post-tax plans. So why do we call it post-tax? Because it’s after the paycheck has gone through that withholding we talked about earlier and hit your bank account that you can go ahead and make these contributions. So you’ve paid income tax on it. It’s part of your taxable income for the year, but you still have some opportunities to have some additional tax-free, truly tax-free growth on that money. So we’re talking about a Roth 401k or a Roth IRA, and those grow because you’ve already paid taxes on it today, those grow tax-free forever. There are some pretty complicated rules on who can contribute and how much. So if this is something that you’re interested in, make sure that you take the time to really understand what the rules are with your individual plan or with your accountant or with your advisor.
But typically you’re still capped at the same cap we talked about before, $23,000 for your combined contributions in a Roth 401k or Roth 403. And certain taxpayers can make contributions to a Roth IRA, which is not administered by your employer. So it’s not going to be part of your onboarding paperwork, but something you can do on your own with your investment advisor. And that cap is a lot smaller. If you can contribute up to $7,000 per person, it goes up $1,000 if you’re over 50. And there are some different considerations there in terms of what might be deductible or what might not be deductible depending on your income. So it’s really good to think about your individual facts with your advisor on that. Yeah.
>> Theresa Marx: And I think with the Roth 401k, it’s interesting. In tax law, we don’t get new things very often, but a Roth 401 is relatively new. So I think not all employers offer it or I think more starting to offer it. So I guess people probably shouldn’t be surprised if they only see a 401k and not the Roth 401k option.
>> Amanda Regnier: Yeah, that’s exactly right. And if we really wanted to dig into the minutia here, think it’s possible too, to make a post-tax contribution to your ordinary 401k, but I think that’s a topic for another episode.
>> Theresa Marx: Another episode, absolutely. So beyond the retirement accounts, what are some of the other types of benefits that you often see employers offering and employees opting into?
>> Amanda Regnier: Yeah, great question. So any big workplace is going to offer health insurance, and you may have to take it depending on laws that apply to you. You may opt to take it, you may have the opportunity to be covered by your spouse’s health insurance, or if you’re young enough, your parents’ health insurance plan. But if you’re over 26 and you’re single, your company’s health insurance is going to be your most likely option unless you go on a state plan or something like that. So that’s going to be something where you’re going to get a menu from your human resources group and you’re going to have opportunities to say, “Do I want a high deductible plan where my premiums are a little lower, but I pay more when I go see the doctor, I don’t get sick very often, that sounds great.” Or to say, “Well, you know what?
I know I’ve got a million chronic things. I’d like my visits not to pinch my pocketbook too much and have more of them covered, even if that’s in exchange for slightly higher premium.” So be able to think through your options there. You may have the opportunity to enroll in dental or vision insurance, always a good thing to consider. And you may even have a flexible spending account option that could cover either just vision and dental or all of your medical costs. And again, that’s a pre-tax set aside. You may have the option to fund so that lowers your taxable income for the year and it’s got to be used for specific expenses. And the availability of those is going to depend on your company’s offerings and to some extent on which health insurance option you choose.
>> Theresa Marx: So it’s really kind of about evaluating, taking a look at your specific offerings from your company and figuring out, okay, what’s my health need? What’s maybe my dental or vision need? And then really choosing the best based on personal circumstances.
>> Amanda Regnier: Exactly right.
>> Theresa Marx: So then what about dependent care is something that I think people talk about when thinking about benefits. Can you tell us a little bit about that and what the factors might be there?
>> Amanda Regnier: Sure. Well, we both have kids and we’re working moms and we know somebody’s got to watch them and that costs money. So a dependent care, flexible savings account is one of my favorite things. You can set aside about $5,000 a year, again, pre-tax, and it’s got to be used to pay a childcare provider. And that can be a nanny, an au pair, an afterschool program, a daycare. And it’s another deduction from your annual income you don’t have to pay taxes on, and you’ve got to keep your records, you’ve got to get a receipt from the person you’re paying to watch your kids. You’ve got to have kids who are a qualifying age. It’s got to be the right kind of setting and the right kind of care, but it’s really a terrific option to force yourself to budget. You’ve got the money set aside and it’s ready there to pay your childcare and you get a tax benefit on it as well.
The other options you may see are things like life insurance and disability insurance. And sometimes those are free. Sometimes you get free life insurance as part of your employment. So no reason not to elect for that. I always click as many as I can that are free. When it comes to paying for term life insurance through work, it really pays to shop around. This is a group policy that’s not super dependent on your own health and levels of fitness, and you may be able to get a better deal on an individual life insurance plan through an independent broker. So something to look into with a little bit of care. Same goes for disability insurance. As we all know, we all know from seeing crowdfunding appeals on social media that these things happen and money is really tight for families who need to take care of somebody who’s not able to work but is alive.
So that life insurance hasn’t kicked in, but their expenses are really high. So disability insurance is something to take really seriously, especially if you have people depending on you. So something to look into for sure.
>> Theresa Marx: To have some of that income replacement, if you can’t work, it really kind of helps defray some of that stress and the access to cash. Absolutely.
>> Amanda Regnier: Yeah, absolutely.
>> Theresa Marx: So this has been very helpful, Amanda. Thank you. I think if I could summarize it all up just in a couple of words, I mean, there is a lot and there’s no doubt that there’s a lot, but it sounds like if you step through each question, each offering and think about what makes the most sense from you from that W4, looking at what your other income is, who your dependents are, et cetera, you can step through that. And then really through those benefits, do you have excess income that you want to put into your 401k? Or how do you want to make sure you’re saving appropriately for that 401k to dependent care, to healthcare? Really looking at what is your circumstance and how can your employee benefits really help you meet your goals and your needs for you and your family?
>> Amanda Regnier: You’re going to be prompted to look at your health insurance elections year to year automatically, but nobody’s going to prompt you to think about how much you’re putting in your 401k. So you might want to set that to automatically increase by 1% per year or set a reminder for yourself to adjust your contributions. And the same with your W4. Once you’ve submitted it, the company has their marching orders and is going to withhold what they’re going to withhold as a percentage of your income. So as your income increases, those things will go up. But if you’ve elected to set aside a certain dollar amount for additional withholdings and that’s either too much or not enough, that’s going to be on you to remember to check and adjust as necessary if your withholdings are not quite right, or if you move states or something else changes.
So good to set yourself a reminder of that maybe for every spring to take a look at it again.
>> Theresa Marx: That’s a really great final reminder. Thank you so much, Amanda.
>> Amanda Regnier: Thank you. Take care.
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