Time for Open Enrollment? Three Benefits That Shouldn’t be Overlooked
In our home, signs of Fall include the return of football, pumpkin spice flavoring on literally everything, and my personal favorite, the candy corn/peanut mix we keep on the counter at home. Perhaps more importantly, this time of year also signals the open enrollment period for benefits at work. Soon, many of us will receive a 20-page PDF from HR with a myriad of complex options to navigate in advance of the always stressful deadline. But before you just re-enroll in the same benefits from last year, grab that pumpkin spice latte while we review some of the most financially impactful benefits you may want to consider.
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The Health Savings Account (HSA) and Flexible Spending Account (FSA)
In our experience, the Health Savings Account (HSA) and Flexible Spending Account (FSA) are a few of the most underutilized and misunderstood benefits within a company’s benefits program. Both plans are pre-tax and can be utilized for a number of qualified expenses, tax-free. The tax treatment of these plans can be very attractive. Of course, each plan comes with certain criteria that you will want to understand to make the best decision for you and/or your family. For example, the HSA is only available to those who utilize a high-deductible plan but the dollars accrued can be invested and carried over year to year. With the FSA, your benefit amount is available day one but must be used up by December 31st. These are just a few of the differences. There are a number of factors you will want to consider prior to making a decision, including but not limited to your family’s health history, tax situation and your ability to fund the plan while maintaining your desired lifestyle.
The 401(k) Employer Match and Roth Option
The 401(k) has become a staple of how working people fund their retirement. With pensions for many employers going by the wayside, it is critical for today’s workers to take retirement into their own hands by saving in plans like their 401(k) to supplement Social Security in retirement. And there are a few key things to consider to make sure you are maximizing your savings opportunity. First, understand the details of your employer’s matching contributions. Many employers offer a company match to your 401(k) and it can come in many different shapes and sizes. Provided you can afford to save, ensure you are contributing to take advantage of a full company match. Anything short of that is essentially foregoing free money. Secondly, many company plans now offer a Roth 401(k) option as well. Similar to a Roth IRA, contributions are after-tax but grow tax-free and are eligible at retirement age tax-free as well. One key difference is these contributions are not subject to the income limitations of the Roth IRA. If your goal is to have the largest amount of after-tax dollars you can have in retirement, or if you expect your income (and associated tax liabilities) to rise in the future, you will want to carefully consider whether utilizing the Roth 401(k) option makes sense for you.
Group Life and Short/Long-Term Disability
How would your family be impacted if the income from your job was no longer available? A death or disability that leads to a loss of income for a family that relies on it can be financially devastating. Thankfully, many employers provide coverage for these unforeseen instances. And because they are underwriting a group rather than one individual, the prices of these policies are often very attractive relative to what you could get on your own. Further, your employer may also subsidize the cost, making the benefit even more attractive to you. One thing to consider is how these policies will function in the event you no longer work at your company. In some cases the policies may no longer be available or may be made available at a much higher cost. For that reason, it is important to consider whether using employer-provided policies like these to complement existing outside policies makes sense. There are a few questions you will want to consider when determining your total coverage amount. Do you have a large mortgage you would want paid off should something happen to you? Are there future education costs for children you would want to fund? What will be needed to replace your income if you were gone? Some thoughtful planning can help you understand if the cost-effective nature of these policies warrant your evaluation.
Consult with Your Partners
Making a decision on these and other benefits requires thoughtful consideration for you and/or your family’s unique situation. Make the most of the resources you have available to best understand the potential impact. Consider coordinating with your benefits and HR professionals, your trusted financial advisor and tax professional to ensure you make the most appropriate decision.
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