By Jason Ramage, CFP
Most employers offer open enrollment for group benefits around November, so now's a great time to touch on a few common benefits and how they might help you.
Chances are good you will see a high deductible health plan (HDHP) along with one or two traditional plans offered. It’s easy to focus on deductibles, yet some employers incentivize their HDHP option with lower premiums and HSA contributions. Thus, be sure to look at the full picture when comparing plans.
Here’s a fictitious example of how you might do this, based on trends reported by the Kaiser Family Foundation:
That $3,000 deductible stands out! Yet where my mind goes is over to the “worst case” scenario. While low co-pays are nice, insurance is really needed for financial disasters. What I’m illustrating here is how the HDHP’s lower premium and HSA contribution make up for the higher out-of-pocket cost. Of course, you need to run the numbers based on your plans and decide which trade-off you prefer.
The FSA/HSA Sibling Rivalry
It’s easy to get confused by the plethora of similar-sounding spending accounts available these days.
FSA stands for Flexible Spending Arrangement. As the name implies, it’s meant for spending. Money you contribute here is subject to the “use it or lose it” rule. If you don’t spend it by a certain date, the remainder is forfeited. Stinks, huh?
The flexible part of an FSA is you can access your full balance at the start of your plan year. That can be a big help for your cash flow if you have a significant bill coming.
HSA stands for Health Savings Account. This is your long-term savings vehicle where your balance “rolls over” each year. You can use it anytime for your family’s qualified medical expenses, even in retirement. Check this story to dive deeper on the HSA topic.
If you go the HSA route and have some dental or vision expenses coming, consider funding an HSA-compatible dental and vision FSA to cover that cost. This way you have more pre-tax dollars for things like braces and lasik while keeping your HSA saved for bigger needs.
For your FSA, only commit to funding what you know with almost 100% certainly will be needed. However, think about maxing your HSA whenever possible. Odds are pretty good you or your family will be glad it’s there someday.
A disability is something of a perfect storm to your finances. You’re fortunately still alive yet limited in your ability to earn an income. If you can obtain affordable disability coverage on the open market, that’s often the way to go. Otherwise, maximizing your group coverage should be a top priority. Be aware of whether the premium is paid pre-tax or post-tax. When premiums are paid before taxes, any benefits paid are taxable income. Your policy might also be portable, meaning you could keep it after separating employment.
If there’s a grown-up version of cleaning your room, it’s got to be updating your legal documents. Fortunately, more employers are offering an easy solution that doesn’t involve going downtown to sit in front of a polished mahogany desk.
Pre-paid legal is great for people with simple needs who just need to be get all their “legal stuff” done. Most of these services provide a fill-in-the-blank format along with the chance to consult with a lawyer remotely to ensure everything is in good order. You might stay enrolled for help with one-off legal questions. If you drop it after one year, you’ve effectively cleared this hurdle in Adulting 101 for much less time and money than it usually costs.
Employee Stock Purchase Plan (ESPP)
This one’s like buying a house – it can pay off brilliantly or turn into a money pit. Most employers offer either an up-front discount or a match on shares purchased. Check for rules about when you’re allowed to sell. If you are required to hold the stock before selling, there’s more risk of losing money on the deal.
Above all, only contribute what you can afford to lose. Every company sees ups and downs. The last thing you want is being forced to sell stock at a bad time only because you needed to cover a bill. Rather, set some rules for yourself such as “If my savings drops to three months of spending, I’ll sell some stock to shore it back up to six months” or “When college is two years away, I’ll start selling stock every quarter to set aside cash for tuition.” This way you put yourself in the driver’s seat.
While it’s not an open enrollment item, tuition reimbursement is often overlooked. More employers like Amazon, McDonald’s, and Walmart are advertising their tuition benefits in our tight labor market. When you’re feeling stuck, even the small step of enrolling in one class can be enough to start feeling more freedom. To me, that’s worth more than anything else you can do.
Hopefully this review is helpful to making the most of your benefits!
About the author: Jason Ramage, CFP®, ECA
Jason Ramage, CFP®, ECA, is a paraplanner for TouchPoint Wealth Partners in Cincinnati, Ohio, a Member Firm of Valmark Financial Group. He enjoys planning for financial independence, equity compensation and tax planning. Yet the real fun is found in using wealth toward a greater purpose in our families and communities. Jason can be reached at email@example.com.
This article is for informational purposes only and is not intended as investment or tax advice. Please consult with your advisor concerning your personal situation.
Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 1-800-765-5201. TouchPoint® Wealth Partners is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.