Are you maximizing your employee benefits? (Part Deux)
In our last blog post, we discussed some key employee benefits to consider as you review your options during open enrollment. Today, we will discuss other benefits that you may be entitled to, such as flexible spending accounts, legal benefits, employee stock purchase plans, and more.
Flexible Spending Accounts (FSAs)
There are two types of flexible spending accounts that I commonly see in employee benefits packages.
FSA – Healthcare
An FSA for health care allows you to put aside pre-tax dollars for the coming years healthcare needs. This can be a great way to stretch your dollars but you need to keep a couple of things in mind.
- FSA accounts ONLY allow you to roll a nominal amount of funds, $500, from year to year. So if you max out your FSA, $2,550 in 2016, but only use $1,050 during the year, you will literally lose $1,000 of your hard earned money.
- As more and more employers and employees utilize HSA accounts, the demand for FSA accounts seems to be declining. But if you have excess cash flow, you may benefit from using both. Especially if you have vision or dental needs that you will need to pay for out of pocket in the coming year.
FSA – Dependent Care
You can also set up an FSA account for dependent care. For 2016, you will be able to set aside $5,000 pre-tax for dependent care. Most of us think of dependent care as helpful when we have young children but it can also be helpful when you are arranging for the care of your parent or grandparent.
More and more companies are offering access to legal services through employee benefits. For a nominal amount, you can have access to attorneys who can help assist you with legal matters such as estate planning, divorce proceedings and more.
If you have this benefit and you have a family or own a home, take a moment to find out more about what is covered in the plan. A quality estate plan is something that I often advise clients to consider. Especially when you have children who need to be cared for if something happens to you. Estate plans can run from $1,500 to $5,000 plus when you work directly with an attorney. Your legal benefits through your employer may dramatically reduce your costs.
Employee Stock Purchase Plans
Employee Stock Purchase Plans (ESPPs) can be a great way to earn a few extra dollars in a year if you have the excess cash flow. I want to be clear. In my opinion, most of us should focus on cash flow, budgeting, retirement savings, and debt management first. Once these areas of your financial life are addressed, if you have excess funds, take a look at your company’s ESPP if they offer one.
Most plans allow you to set aside a percentage of your income to purchase shares of company stock at specific times in the future at a discounted price, typically 10-15%. The maximum contribution is limited to 15% of your salary or $25,000 per year.
So how does this work?
The company sets aside funds from your paycheck each month. Then on specific dates, shares are bought for you at a discount.
For example, your company offers a 15% discount and the price at which they base the purchase price is $100. You get to buy the shares at $85 per share. At this point, your company may or may not have restrictions regarding the sale of your stock.
Let’s say there are no restrictions. You could turn around and sell your stock at $100. You would pay ordinary income tax on the gain from $85 to $100.
If you sold for $101 instead, you would pay ordinary tax on the entire amount as well.
If you decide to hold the stock for 1 year instead and next year you sell for $101. You still pay ordinary income tax on the discount you received, ($100 – $85) but you only pay a long term capital gain tax on the dollar gain ($101 – 100).
The point is if you have the cash flow to float the purchase, you could make a few extra dollars a year after taxes.
Benefits will vary from employer to employer. Other benefits that you may see offered include:
Funds for gym memberships and weight loss programs
Accidental Death and Dismemberment Policies (AD&D)
Now that you know about many types of benefits that are offered by employers, take action! Go take a look at your employee benefits and see what changes you can make to put your benefits to work for you and your family.
On a personal note, as we all give thanks this week, I want to thank my beautiful and intelligent wife for supporting me as I grow Stone Steps Financial. Without her love, support, and editing, none of this would be possible!
Wishing you all a Happy Thanksgiving!