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

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 Lifepreviously told Business Insider  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.

Increase your 401(k) contribution

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

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

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.

Pay off lingering debt

If you have debt — whether it’s student loans, car loans, or credit card debt — a bonus can be a great way to start tackling it aggressively. If the interest rate on your debt is high, you’ll want to pay it off as fast as possible — interest can cost you thousands in the long run.

If you aren’t sure where to start, consider the advice from 13 real people who paid off thousands of debt.

Start, or contribute more to, an emergency fund

Not setting aside money in an emergency fund is a common (and costly) mistake — it’s easy to ignore the possibility of your car breaking down, a medical emergency, or losing your job, but these are all scenarios that could quickly become expensive realities.

Use your bonus create an emergency fund if you haven’t done so already.

The amount of savings you need is highly personal, so it isn’t usually measured in terms of dollars; rather, it’s months of living expenses that money could cover. A general rule is that it’s smart to have six months’ worth of savings tucked away, but you may need more or less depending on your situation.

Contribute to a healthcare flexible spending account

If your employer offers a healthcare flexible spending account, it could be a smart investment. It’s a pretax benefit account you can use to cover a variety of healthcare products and services, from acupuncture and physical therapy to vaccines and over-the-counter medicine (note that OTC medicines are only eligible when prescribed by a physician).

You can put up to $2,650 of tax-free money into this account in 2018,according to the IRS. Note that you must spend the money saved in an FSA by the end of the year.

Contribute to a health savings account (HSA)

Another health-related benefit you may be able to tap into is the health savings account (HSA), into which you can put pre-tax money and use towards medical costs whenever you want, not just during the plan year. The contribution limits are higher than FSAs — $6,900 for a family in 2018 — and there’s no limit to how much can be rolled over at the end of the year.

To qualify for a HSA, the IRS requires you to be on a high-deductible health care plan (HDHP) — a plan that offers a lower health insurance premium and a high deductible. This option is particularly advantageous for those who are generally healthy and don’t have to go to the doctor’s office or hospital that often, such as 20- or 30-somethings without children who are looking to save for future health care expenses.

“It’s one of the more popular benefits these days,” Britta Meyer, CMO at consumer-directed benefits administrator WageWorks, told Business Insider. “It allows you to contribute on a paycheck by paycheck basis, and you can keep it for as long as you want, even if you change jobs.”

While you can use it to pay for qualifying healthcare expenses today, you can also use it as a complementary tool for retirement planning, as the funds will always be available for you to use.

“If you can afford it, you can contribute to it even in the early years of your career when you may not have a lot of medical expenses,” Meyer said. “You can contribute year after year and develop a ‘healthcare nest egg’ that grows over time and will always be there for you.”

Contribute to a dependent care flexible spending account (FSA)

If you have younger children, dependent care FSAs are worth considering. This account works very similarly to the healthcare FSA in that you can contribute pre-tax money, but is specific to dependent care services, such as preschool, summer camp, daycare, or before and after school programs. Again, you must spend the money in your FSA by the end of the plan year.

“It is probably the single most underutilized benefit,” Meyer said. “Employers offer it quite frequently, but people are not taking advantage of it.”

Set aside money for big purchases

There are bound to be big expenses in your future — a home, car, vacation, and kids, to name a few — that require diligent savings.

The best way to prepare for these expenses is to create savings goals and then set aside money as early as possible. Use your bonus to jump start these savings goals, or add to previously established ones.

Consider investment platforms outside of retirement savings plans

An end-of-year bonus is a good opportunity to start investing in low-cost index funds, which legendary investors Warren Buffett and Jack Bogle recommend. Even millionaires prefer this simple investing strategy for the high returns and low costs.

There are also online investment platforms known as “robo-advisers,” which manage your investments for you through unique algorithms.

You could also make a lump-sum investment with your bonus — when you invest your money all at once rather than over time, according to Richard Graziadei, managing director of TIAA-CREF: “Putting a bonus to work right away is a smart thing to do. Get it invested — if you’re going to invest it — within a few weeks. Don’t wait three, six, or 12 months.”

Of course, you’ll want to make sure your general finances are in order before you invest— but if you have a sound emergency fund, have prepared for future expenses, and are debt free, the quicker you put your money to work and jump start its growth, the better.

Invest in yourself

Self-educate by enrolling in a course, attending a work related conference, or investing in books. The wealthiest, most successful people are constantly exercising their brains and looking for ways to continue learning long after college or any formal education is over.

On a similar note, invest in your health — consider using your bonus for a gym membership, yoga classes, juicer, fitness magazine subscription, or anything else that will better your health and strengthen your mind.

Also consider picking up a hobby — even the world’s most successful people have them. Hobbies can make you even more successful by helping you develop additional skills.

This article was originally published on Business Insider.