While more and more Americans dream of building and running their own business, working for someone else can actually have its perks, including retirement plans, life insurance and other benefits. With open enrollment underway for many corporations across the country, now is a great time to review your employee benefits to make sure you are using them to their fullest potential.
This week we will discuss the most common employee benefits. In our next post, we will discuss other benefits that may be available to you that could prove to be hidden gems. There is no better way to start the holiday season, than opting into benefits that you simply don’t know about. It’s like finding a $20 bill in your winter coat pocket!
Your Retirement Plan
Many employers offer a 401k, 403b, or another type of retirement plan. Open enrollment can be a great time to increase your level of savings to your retirement account. Increasing your savings rate by 2-3% won’t dramatically impact your take home pay and if you do this year over year, you will be well on your way to retirement in no time.
Check and see if your employer offers an employee match. This truly is FREE money, yet so many people don’t take advantage. Don’t be that guy! Sign up ASAP.
Does your employer only offer pre-tax plans or can you also contribute to a Roth 401k/403b?
With pre-tax plans, you get to reduce your tax bill now but you will pay taxes in future. With a ROTH, your contribution is after-tax and if you follow the rules, you will get to take the funds our in retirement tax free. Depending on your situation, it may make sense to do a bit of both or favor one type of account.
Many companies offer life insurance at no cost to the employee. Make sure that you are enrolled and know what your coverage is. It is typical to see coverage for 1 or 2 years salary.
This coverage is typically not enough for young professionals with families and debts to pay. You may want to look for additional coverage through the private market as well to ensure that your loved ones are cared for if something happens to you.
If your company offers disability insurance, you may want to seriously consider enrolling. All too often, I see young families consider life insurance when they start a family but they don’t really think about the possibility of becoming disabled and how that could affect their ability to generate an income.
Many companies offer disability insurance that covers up to 70% of your salary. Please note, that if your company pays the premiums, the benefits will be taxable income for you. However, if you pay the premiums, which some companies allow, the benefits will then be tax free.
Another thing to be aware of when it comes to long term disability insurance is the waiting period, which can by up to 180 days. You want to make sure that if something happened to you, you would be able to pay your bills until you start receiving your benefits.
You should have an emergency fund in place for such occasions, if you don’t or if you are building one, you may want to consider short term disability through your employer as well.
See if your current health plan is the best option for you. Perhaps you are in great health and rarely go to the doctor. In that case, a high deductible plan with a health savings account (HSA) may be the right choice for you.
HSA accounts allow you to contribute funds pretax. You can then withdraw the funds tax free for qualified medical expenses. The funds in the HSA can be invested and also roll from year to year, unlike Flexible Savings Accounts (FSA), which you lose at the end of year if you don’t use the funds. Many large employers even contribute to the HSA account for you.
The benefits offered by your employer can be so valuable. While it can be a bit complicated to understand your benefits, a little effort can go a long way.
In our next blog post, we will discuss other benefits you may find, such as employee stock purchase plans, legal benefits, flexible spending accounts and more.