It’s everyone’s favorite time of year! When your HR department emails you a huge brochure and provides you with links to sites you cannot remember the password to (please go here for my piece on LastPass). Then they ask you to make a ton of decisions about things you do not really understand: Health Insurance, Flexible Spending Accounts, Health Care Savings Accounts, dental, vision, deferred compensation, 401(k)s. The list goes on.
One Benefit At A Time
When it comes to health insurance, first think about you, your family, and your habits. Below is a list of questions you should consider before making your election.
Are you a family that loves visiting the doctor? If so, pay attention to the various deductibles you will need to meet in the coming year.
If it is a high deductible plan, is this a number you are prepared to come out of pocket for?
When you go to the doctor do you prefer to go to whomever you would like without a referral from your general practitioner?
These are all things you will need to take into consideration before choosing a plan.
What Are FSAs And HSAs Anyhow?
In addition, depending on what plan you choose, you may have the option for a Flexible Spending Account (FSA) or a Health Care Savings Account (HSA). There are also some other iterations in between, but these are the most popular. Knowing the difference between the two may save you some grief at the end of next year.
Both an FSA and HSA allow you to contribute funds on a pre-tax basis. It is the rules on how and when you have to use the money that matters. With an FSA you contribute funds and use them in that same year. If you do not use it all, you are out of luck. This means, if you put in $2k anticipating a few trips to the doctor, maybe some contacts or new glasses, but at the end of the year you still have $500 in your account, you can kiss that $500 goodbye.
With an HSA you contribute funds and anything you do not use, you get to keep. There are a couple other bonuses to this account. If appropriate for you and your situation, you are able to invest the funds in this account. Should you get to 65 and still have a balance in this account, you are able to use the funds for non-medical expenses without incurring a penalty. Though you will still pay ordinary income taxes, but hey, you did get all that tax deferred growth in the meantime!
What About Daycare?
For those of you with kids in daycare you may want to consider taking advantage of the Dependent Care FSA. This account allows you to contribute up to $5k in pre-tax funds and then use those funds to pay for daycare. We all know, with the unbelievable cost of daycare, any break you can get on that cost is worth the effort.
401(k)s, 403(b)s And Other Accounts With Silly Names
This one is bit more complex and the answer will vary from person to person. However, in general, it is always a good idea to take advantage of a 401(k), 403(b), SIMPLE IRA, etc. whether or not your employer makes a match. The government only allows you to put away so much each year into these tax advantaged accounts. Every year you let pass without contributing is a year of tax deferred growth you are missing out on.
You may be thinking you cannot live without that money. Let’s have a simple math exercise to see. If you contribute $100 each month to your work retirement account this is $100 on a pre-tax basis. If you are in the 25% tax bracket, that is really only $75 to your actual paycheck. Now, take a look around, can you make a lovely brunch, steak, sangria at home? Can you rent a movie tonight instead of dinner and a movie? Future you thinks you can.
There are a host of other benefits offered out there. Whether or not you want to use them comes back to your habits and your family. If your employer offers life insurance, and you do not have any, but your family situation dictates that you should, this is a great place to start. If they offer legal services, think about whether you need these services and if you do pay for them, make sure you take advantage of them.
When in doubt be honest yourself about who you and your family are. Not all benefits are gratis so each box you check may cost you something.
Those benefits windows are short! Grab a martini, beer, coffee, find your password and start clicking!
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