Are You Taking Advantage of Your Benefits?
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With your busy life, you probably haven't taken the time lately to review all your employee benefits. Sure, when open enrollment season comes, you probably consider your health insurance options. But your company probably offers other perks that you haven't paid much attention to. You should. And you can do so today!
These other benefits can help you save on taxes, set money aside for some of your regular expenses such as commuting costs or day care, and put a portion of your monthly budget on auto-pilot by taking money directly from your paycheck to help you save for various goals. Here's a review of some of the benefits your company may offer -- and why they're so important!
Retirement Savings Accounts
Among the best-known employee benefits are retirement savings plans. Everyone needs to save for retirement, and the tax advantages of a 401(k) or 403(b) plan can't be matched by a plan you create yourself. (Even self-employed people can start up retirement plans of their own, such as individual 401(k)s, SEP IRAs or Keoghs.)
"Your contributions are made on a pre-tax basis so there are tax savings, and often companies will make matching contributions based on your contributions," says Marty Moore, a Certified Financial Planner with TriCapital Financial Group in Charlotte, North Carolina.. "Plus, investment earnings in the retirement plan are tax-deferred until money is withdrawn at retirement."
If you earn $30,000 a year and you save $5,000 annually to your employer-sponsored retirement plan, you'll be taxed on $25,000 of earnings. You could end up in a lower tax bracket, and you'll essentially be able to keep more of your hard-earned money.
Employer matching funds for these retirement plans are an additional big incentive. Many bosses will pitch in 50 cents for every dollar you save, up to 6 percent of your salary. That's free money, so planners recommend that at the very least, you contribute enough to get the full matching funds.
There are very few reasons not to save in your employer-sponsored retirement plan. If your employer offers only very limited investment choices, such as your own company's stock, financial planners say you shouldn't put too much of your savings in the plan because you'll be betting your retirement on the future of a single company -- not a smart strategy. And if you have lots of debt, consider putting your extra cash towards paying it off because you're probably paying more in interest than your investment will earn in the retirement plan.
For more on employer-sponsored retirement savings plans, check out these stories:
Flexible Spending Accounts
Flexible Spending Accounts, or FSAs, allow you to save pre-tax money for certain expenses, such as out-of-pocket medical expenses including co-payments and deductibles, child care and elder care. Instead of paying those expenses from your regular cash flow, you can withdraw money from your FSA to cover the bills.
Say you earn $30,000 and you save $2,000 to your FSA. You'll only be taxed on $28,000 of income. (It works the same way 401(k) contributions do.)
The challenge with FSAs is deciding how much money to set aside, because you have to choose an amount when you sign up for the plan without knowing precisely what you will actually spend during the coming year. To determine approximately how much you'll need, take a look at receipts from the previous year and estimate if your expenses in the coming year will be about the same.
But don't overestimate. It's better to save too little than too much in an FSA. These are "use it or lose it" plans -- if you don't spend the money, the excess is not returned to you.
Education Savings Accounts
Some employers offer a variety of savings plans that will allow you to set aside funds for your childrens' college educations. The main advantage of these plans is that they will take money automatically out of your paycheck -- before you can spend it -- and earmark it for college. Though the funds are not pre-tax, you still get some tax benefits depending on the investments you choose. Different employers may offer different options.
Some employers allow you to purchase EE Savings Bonds through payroll deductions. These bonds are tax-free, if used for education.
529 plans are also being offered by more employers through payroll deduction. Financial planners consider 529 plans to be one of the best college savings vehicles around. The plans allow you to save money, which grows tax-deferred and can be withdrawn tax-free to pay for education expenses. The money in the account can be invested in various mutual funds.
Transportation Savings Accounts
This is a new type of account, and it's not yet popular in all parts of the country. Transportation Savings Accounts (TSAs) are offered mainly by employers in large metropolitan areas where commuting can be expensive. You can set aside pre-tax dollars in TSAs to use for certain travel expenses. Like 401(k)s and FSAs, the amount you set aside will reduce your taxable income.
Health insurance is one of those benefits you probably take for granted. But you should review your plan each year because your company may make changes to the benefits available to you. In an effort to cut costs, your bosses may increase co-payments or deductibles for the plan you have now, or perhaps they're changing carriers.
You may have had some changes in your own life, too. The HMO that was good when you and your spouse were childless may no longer be the best choice for you now. Or maybe you need more specialists today and you're tired of the referral policy of your current insurance plan. Don't automatically select the plan you had last year. Read the information provided by your benefits administrator to make sure you have the best plan for your needs.
Life insurance will give your family a monetary benefit when you die. It won't replace you, but if you have kids and a future of college bills, a mortgage or other expenses, life insurance will make the financial burden easier on your spouse.
Most employers offer some form of group life insurance at reduced premiums; some cost pennies a week, though other employer plans are not as economical as plans you can purchase on the outside. Check out what your employer offers to see if there are any good deals. Another advantage of your company's policy is that you probably don't need to have a medical exam to qualify. But counting solely on your company's life insurance may be a mistake.
"If you leave the company, you lose the insurance, and you'd have to re-qualify at an older age with a new carrier," says Laura Schoenborn, a Certified Financial Planner with Legacy Capital Partners in Milwaukee, Wisconsin. Information on life insurance is available at the Web site of The Insurance Information Institute.
Disability insurance will pay you a percentage of your salary if you're ever unable to work because of an accident or an illness. Buying coverage on your own can be costly, but many employers offer group plans that cost you very little in comparison to what you'd spend on an individual plan.
For example, for premiums of $1,100 a year, a 38-year-old female non-smoker could find a policy that offers a 90-day elimination period (that's how long before payments to you would start). The policy would pay benefits of $3,000 a month until age 65, Schoenborn says. Coverage through an employer could cost less than $100 a year -- and you don't have to take the physical that could be required from an outside insurer.
Financial planners say disability insurance is just as important as life insurance.
"For most individuals, one of their biggest assets is their ability to earn, so protecting that income stream is as important as anything else," says Schoenborn. "Most people at most ages are more likely to be disabled than they are to die."
But as with life insurance you get through your employer, you're no longer covered when you leave your job. Some employer policies will allow you to convert the group policy to an individual one when you leave the company, so ask your benefits manager about taking the coverage with you. It may not be much cheaper than an individual policy, but at least you won't have to go through the rigors of re-qualifying for insurance.
You can learn more about disability insurance from The Insurance Information Institute.
If your company doesn't offer some of these benefits, talk to your employer about getting some new programs in place. You can put together a proposal for your bosses.
Karin Price Mueller is a columnist for The Boston Herald and the author of Online Money Management (Microsoft Press, 2001).