The 11 smartest things to do with your end-of-year bonus

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• Salaries with bonuses or commissions are offered at a majority of businesses, according to CNN.
• It can be tempting to use your bonus to treat yourself, like splurging on a luxury item or vacation.
• Investing your bonus in retirement, an emergency fund, or yourself is more beneficial.

According to CNN, 91% of businesses now have variable compensation programs — salaries coupled with bonuses or commissions.

Bonuses tend to come around the holidays, meaning that many employees are in for a nice supplemental check soon.

While it can be tempting to splurge on the latest iPhone or treat yourself to an extravagant vacation, excessive spending may not be the most productive way to handle your bonus. Making a long-term plan and investing your hard-earned money in retirement, an emergency fund, a health account, or even yourself will pay off more in the long run.

Katie Brewer, CFP and founder of financial planning firm Your Richest Life, previously told Business Insider that you should put 80% of your holiday bonus to "serious money" and 20% of it toward "fun money." 

Before blowing your check on gifts, trips, or gadgets, consider directing it towards these 11 options.

Kathleen Elkins contributed to an earlier version of this post.

Increase your 401(k) contribution

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You should already be contributing to your employer's 401(k) retirement account and taking full advantage of any available company match program if one is available — but if you get a bonus, that's a great opportunity to increase that contribution.

The more you can set aside today, the better off you'll be in the long run, thanks to the power of compound interest.

Just know that the 401(k) contribution limit for 2018 is $18,500, according to the IRS. 

Max out other retirement savings accounts

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If you haven't yet reached the contribution limits on other retirement plans, such as a traditional IRA or Roth IRA, direct your bonus towards one of those. 

There are a few key differences between the two accounts:

1. The income limit. Anyone can open and contribute to a traditional IRA, whereas there's an income cap on the Roth IRA for the 2018 year: Only married people earning less than $189,000, or single people earning less than $120,000, are eligible. The maximum yearly contribution for both accounts in 2018 is $5,500 (or $6,000 for people age 50 or older).

2. Taxes. Contributions to a Roth IRA are taxed when they're made, so you can withdraw the contributions and earnings tax-free once you reach age 59 1/2. Traditional IRA contributions, on the other hand, are tax-deductible when they're made. Both contributions and earnings are taxed when you withdraw them starting at age 59 1/2.

The advantage to the Roth IRA is clear: You only pay taxes on a portion of your savings (your contributions), while with a traditional IRA, you're taxed on every penny (contributions and earnings).

Roth IRAs are particularly well-suited to millennials. However, even if you're not a member of Gen Y, it's worth considering if you don't exceed the income cap.

Start a 529 savings plan for your kid

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College tuition has more than doubled since the 1980s, currently at an all-time high.

Time has a way of flying by, and before you know it, you'll be responsible for a hefty tuition bill. Take your bonus and put it towards a 529 savings plan, a state-sponsored and tax-advantaged investment account that you can start when your child is born.

These plans allow a single parent to contribute up to $14,000 a year — $28,000 for a couple — for each of their children's college educations. It also allows anyone (a grandparent, godparent, or particularly generous neighbor) to contribute to the fund.

See the rest of the story at Business Insider

See Also:

• I spent a week asking everyone I met how to make more money — here are the 7 things they suggested
• 21 quotes from self-made billionaires that will change your outlook on money
• 6 things you should know before opening an investment account

SEE ALSO: 11 signs you're about to get a holiday bonus

DON'T MISS: What to do first with your holiday bonus

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