First of all, if you work for the man (like me), you probably have some kind of benefit package. Enroll. Enroll right away!
You know that salary your employer offers you? That is just the beginning of your compensation, your base pay! According to the U.S. Dept. of Labor, your benefits average 31.5% of your total compensation package. For someone making $50,000, that’s an additional $15,750 for a grand total of $65,750.
There are a number of benefits you should be taking advantage of as soon as you are eligible. There is usually a minimum number of weeks/months you must be employed before you qualify and then a limited period of time in which you can enroll don’t mess this up!
Let’s run through a few ways you can let your employer work for you and help you make the most of your benefits…
Benefit #1—Health Insurance:
This is a huge benefit (can I get an amen from everyone who has gone without employer-sponsored health insurance). I would recommend price-checking your employers plan with the marketplace, but I am a proponent of paying a little more for better coverage (your employer may have a pretty good plan- check out this link before you go declining your employer-sponsored plan).
Benefit #2—Flex Spending/Heath Savings Accounts:
You may think this only applies to your co-workers with families….false. These are pre-tax dollars we are talking about…..precious, precious pre-tax dollars. I will defer to Forbes to explain the difference between the two options. Basically, you can set aside money for health-related expenses (think deductibles, co-pays, meds, and NOT Crest Whitestrips). Usually, you receive a debit card and can use it to pay for your expenses. I am no expert, but I have learned from experience, save all of your receipts and plan ahead. If you have a FSA, you need to accurately estimate your annual health costs. With a FSA, if you don’t use it, you lose it. You don’t want a bunch of money left over at the end of the year and have to stock up on bandaids. If you find yourself in that scenario (like I did) click here.
How does a FSA save you money, you may ask? Your FSAs can result in significant payroll tax savings by coming out of your paycheck before any taxes are taken out. AKA reducing your taxable income. I used this calculator to figure the following (based on an annual income of $65,000, AZ residency, and $1,000 in medical expenses).
I also read that you can estimate a savings of 21% (assuming Federal, state and social security taxes are avoided by making pre-tax contributions). Similarly, employers often offer Dependent Care Accounts with $5,000 limits (21% of $5,000 is a savings of $1,050). Let’s face it – you’re going to spend this money anyway, you might as well avoid paying income tax on it…..AND Momma wants Lasik.
Benefit #3—Employer-Match on Retirement Accounts:
Many Employers offer a match program for your retirement contributions. This applies to traditional accounts, 401(k)’s or 403(b)’s, not IRA’s. As my dad would tell you, this is the only FREE money around.
- Scenario #1: 50% match up to the first 6% – Your employer contributes 50 cents into your retirement plan for every $1 you put in (with a limit of 6% of your gross salary). If an individual makes $50,000 and contributes at least 6% to his/her 401(k) plan they will receive $1,500 per year for “free”. HINT: For you to maximize their contribution, you need to contribute at least 12% (so they can max out that 6%).
- Scenario #2: Dollar for Dollar up to 4% –If an individual contributes 4% and their employer matched that 4%, an individual earning $50,000 per year, would pocket an additional $2,000 of “free” money annually.
Note: An employee who doesn’t contribute at all to their plan will receive nothing from the employer in the way of a match. It is usually fairly easy to enroll, and we all know how compound interest works- SO DON’T MISS OUT ON YOUR FREE MONEY!
Also, know your vesting timeline as your employer may not be immediately vested. This means, if you left your job tomorrow, you might also be leaving the money they had contributed behind as well.
These are just a few ways you can let your employer work for you! They are already budgeting for YOUR benefits, all you have to do is access them! What employer benefits do you guys love?