By Jaclyn Felder-Strauss, CPA
Accounting Faculty, Purdue Global
Published March 2016
Starting a new job is exciting and can also be a bit overwhelming when you are presented with a large handbook or link to a website that contains all of the employee benefits available through an election. Whether you make $5,000 per year or $5,000,000 per year, maximizing your employee benefits is extremely important to your personal financial picture. Maximizing your benefits does not necessarily mean taking all the benefits available to you. You must think about what you need and what makes sense for you and your family.
Let us now dive into the most commonly offered employee benefits out there and what they can mean for your financial health.
There are two main categories that plans may fall into:
- A Higher Monthly Premium, Lower Deductible and Lower Out-of-Pocket Maximum Plan
- A Lower Monthly Premium, Higher Deductible and Higher Out-of-Pocket Maximum Plan
Deciding which option to take for yourself will require you to consider factors such as your age and whether you anticipate any high medical costs in the coming year or not.Considering a Health Savings Account for the out of pocket costs you may incur could be a good option. Also, a number of companies offer enrollment in wellness programs in order to reduce the monthly premium. If this is the case for you, it may be a good idea to take advantage of the program. Overall, it makes sense to crunch some numbers before making your choice.
Health Savings Account (HSA)
Take the time to investigate if your company will be contributing to one of these on your behalf or if they will match contributions you make. It is always a good idea to take advantage of this option if you have it because it is triple tax-advantaged and has some flexibility in how you can use it. Your contributions to the HSA provide an upfront tax deduction. A family can contribute $6,650 in 2016 and an individual can contribute $3,350. If a family were to max this account out and is in the 33% tax bracket, tax savings would be in excess of $2,200. The money can then be invested and grow tax-deferred, and you can take the money out of the account tax-free for health purposes. The money will always belong to you as you will not lose it if your relationship with the company changes and you no longer work there.
There is a good chance that your employer offers a 401(k), 403(b), 457 or SIMPLE IRA that you can contribute to. The first thing to investigate is whether or not the company will match any contributions that you make. If so, this is the MINIMUM that you will want to contribute to ensure you are taking advantage of the “free money” your company is providing you to invest with for retirement. In 2016, you can contribute $18,000 to a 401(k) and 403(b) and $12,500 to a SIMPLE IRA (Fidelity.com). There are several tax savings you will receive as a result of making the wise decision to invest in your retirement account. An upfront tax deduction on your contribution is given; your money grows tax-deferred which allows for the faster accumulation of your nest since you don’t pay taxes on the interest, dividends and gains every year; and thru tax rate arbitrage where your save money in taxes at your higher “marginal tax bracket and withdraw in the future at your “effective” rate which is typically lower, on average.
Dental and Vision Insurance
Ensure that you are reviewing the costs of each of these insurance options as it may make sense to pay out of pocket rather than pay the premium each month. For dental however if you have children approaching the age that braces are necessary you may certainly save by electing dental coverage.
Disability and Life Insurance
If your company offers disability coverage for no cost certainly take it. However, if there is an option to add coverage at a monthly cost know that company provided disability insurance will typically cover 40-60% of your salary if you were out of work for a specific amount of time due to illness or injury. In the event your need long-term disability above and beyond your company paid plan you should look into taking out a private policy to meet your individual needs. Many large employers provide a modest level of company paid life insurance benefit for their employees. These same companies, in most cases, give you the option to buy supplemental life insurance for yourself, your spouse and for your children. There is a good chance that depending on your age and overall health you can find a less expensive option privately and always have the policy. When you leave an employer you are not able to take these policies with you typically which would leave you older and therefore increasing the costs to apply for private policies then today.
Vacation and Sick Time
Each company does offer vacation and sick time. Some do provide the incentive that if you do not take sick days you can convert them into vacation time. According to a new study by Oxford Economics, U.S. workers are using only 77 percent of their paid time off (Project Time-Off). If you have a use it or lose policy at the company you work for, take advantage of this benefit as you deserve it.
Jaclyn Felder-Strauss, CPA, is a full-time faculty member at Purdue Global. The views expressed in this article are solely those of the author and do not represent the view of Purdue Global.
This article serves and general information and should not be relied upon as official tax advice. For tax application to your individual situation you want to be sure to consult your personal professional accountant and tax advisor.
"Contribution limits for retirement accounts" Fidelity.com. https://401k.fidelity.com/public/content/401k/home/vpcontributionlimits (accessed 2015).
"All work and no Play, Project Time-Off" http://www.projecttimeoff.com/research/all-work-and-no-pay-impact-forfeited-time (accessed 2015).
IRS website. https://www.irs.gov/publications/p571/ch01.html online at irs.gov (accessed 2015).
"Employee Benefits" http://www.businessdictionary.com/definition/employee-benefits.html (accessed December 18, 2015).