The Social Security Payroll Tax Holiday

As a result of the tax compromise that President Obama struck with Congressional Republicans, starting in January 2011 there will be 2% reduction on the employee portion of the Social Security payroll tax.

What does this mean for you?

Essentially, it means that you'll get an additional 2% on your paycheck, but there is a catch - that additional money is being temporarily diverted from Social Security. This can be a positive thing for the economy because it pushes cash into your pockets to spend - but it is cash that would otherwise be placed in the Social Security Trust Fund.

What are my options?

This kind of additional and unexpected income could be classified as a windfall. Windfalls provide an unexpected opportunity to save for the future. While spending the extra money is a viable option, you can also consider increasing your 401(k) contribution by 2%. Many employer 401(k) plans let you make these types of adjustments quickly and easily online.

This simple action will maintain your current after-tax pay, provide an immediate tax benefit, and boost your retirement savings. While a 2% increase might seem insignificant, small changes like this can add up to sizable amounts in the future.

Are you being well served by your current financial advisor? SF Fire provides Advisor-assisted investment solutions and meeting with our CFS* Financial Advisor is complimentary. Contact Stephen Seewer at (415) 674-4846 or if you've resolved to make a move in 2011 - or if you just want a second opinion.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (CFS), a registered broker-dealer (Member FINRA / SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. SF Fire Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.