Remember that booklet that you were given when you were first hired a few years ago? That’s your benefits package. Try to find that or request a copy from the Human Resources department. (Many benefits packages are now available online). Most companies offer some sort of health insurance, vacation time and a company retirement plan, but even figuring those out can be tricky. Every employer offers different benefits which is why this process can be so confusing, so set aside an hour of time to read through everything. If you’re still confused, make an appointment with someone in your H.R. department who can answer your questions.
Company Retirement Plan
Does your company offer a 401(k), 403(b) or SIMPLE IRA that you can contribute to? If so, find out if your company offers an employer match and what you have to do to qualify. Make sure that you’re contributing enough to receive your full company match. For example: If your benefits package states that the employer will match 50% of the employee’s contribution up to 6% of his or her salary, this actually means: if you contribute 6%, your company will kick in 3%. If you’re not contributing at least 6%, you’re leaving FREE MONEY on the table. To save even more on your tax bill this year, increase your contributions so that you and your spouse are contributing the maximum each year towards your retirement accounts.
Health Savings Accounts (HSA)
Most companies just have one health insurance plan, but if you have multiple to choose from, you may want to see if your company offers a high deductible plan that includes a Health Savings Account (HSA). An HSA allows you to contribute pre-tax dollars to an account to be used for out-of-pocket medical, dental, and vision expenses. The best part is that any money you don’t use stays in the account to be used in the following years. (This is a great way to save for more expensive health costs like pregnancy and delivery, or LASIK eye surgery). You can even invest the assets in your HSA. Some companies even contribute money towards your HSA because they’re saving money by you choosing a high-deductible plan over a traditional PPO plan. You may even save $20 a month on your gym membership through your health insurance plan if you visit the gym a minimum number of times each month. If you have a gym membership, find out if you qualify.
Flexible Spending Accounts (FSA)
If you don’t have an HSA to use for medical expenses, you may be able to sign up for a Flexible Spending Account (FSA) instead. Again, this is money to pay for medical expenses with pre-tax dollars, but unlike the HSA, these dollars don’t carry over to the following years. You either use or lose it, so make sure not to over contribute to your FSA. There’s another type of FSA that is called the Dependent Care FSA. Each spouse can contribute up to $2,500 per year in pre-tax dollars in a Dependent Care FSA to be used for childcare costs. This means that a portion of your daycare costs can be paid with pre-tax dollars. You cannot utilize both an HSA and FSA for medical expenses, but you can have an HSA for medical and a Dependent Care FSA for childcare. (Technically, you can have an HSA for medical and a limited purpose FSA for dental and vision expenses, but that adds another layer of complexity).
Term Life Insurance
Many employers will include some group term life insurance as part of your benefits package (usually 1-2x your salary). If you have children or a spouse that relies on your income, make sure that you sign up for additional term life insurance coverage or buy an individual term life insurance policy to ensure that your family would have the assets they need if something were to happen to you. Don’t forget to name a beneficiary!
Group Disability Insurance
Sign up for your group short-term and long-term disability plan. It is much less expensive to purchase a group policy through your employer than it is through a private provider. If you have two different policies to choose from, choose the one that provides the highest benefit amount. Often disability insurance will cover 40-65% of your salary if you were out of work for a specific amount of time due to illness or injury. Make sure you read the details of your policy because they can vary significantly and it may be worth it to buy a supplemental policy through another insurance company if your work benefits are not sufficient.
Do you take the metro or bus to work everyday? Your employer might offer commuter benefits, which allow you to pay for your public transit costs through your paychecks using pre-tax dollars. This small change could save you money on costs that are already part of your monthly budget. It all adds up!
Employee Stock Purchase Plan (ESPP)
Does your company offer an Employee Stock Purchase Plan (ESPP)? If so, you may be eligible to buy company stock at a discounted price through your payroll deductions. Sometimes you can buy shares up to 15% below market value, which is an even bigger incentive. There are different tax implications depending on when you sell the shares so make sure you talk to your tax accountant or CPA before selling shares.
Employee Stock Options
More and more employers are starting to offer employee stock options as an incentive to work at their company. Often times you have to work at the company for a set amount of time before your stock options vest. Once shares have vested, you can exercise your stock options at the strike price in your contract. Stock options can be complicated but here’s a breakdown of definitions and key terms from Investopedia.
Don’t be one of the 57% of Americans that has unused vacation time. Whether you receive two weeks or four weeks, take some time away from the office and enjoy the time off. If you’re not utilizing all of your vacation time, see if your work allows you to receive compensation for your unused time or ask about carrying over vacation days to the next year.
The Payoff: Save Money Now While Investing Money for Later
How does this impact your tax bill? What about retirement? Anything that you can pay for using pre-tax dollars such as health care costs, commuter benefits, or insurance will give you an up front tax break. In addition, the more you can set aside in pre-tax retirement accounts the less you’ll pay in taxes, but also the more you’ll have for retirement! Also, an ESPP can be a valuable tool to help you set aside even more money!
Every company offers a unique set of benefits. Some companies offer store discounts, tuition reimbursement, sabbaticals, on site childcare centers, and much more. The next time you’re wondering how to maximize your financial situation, start by reading your company benefits package. You might be missing out on valuable perks!