Navigating Annual Open Enrollment
A Comprehensive Guide to Maximizing Your Employee Benefits
By Mark Yatros
It's that time again: Packets of information about employee benefits will soon land in your office mailbox. HR will probably hold meetings to explain any changes to next year's benefits. Then, you'll begin combing through all your options and make decisions before annual open enrollment ends.
If you find determining which benefits to activate a tad confusing, you're not alone. But you must figure it out because employee benefits are an essential part of your compensation package. The U.S. Bureau of Labor Statistics says the benefits package accounts for nearly 30% of the average worker's annual compensation.
It's vital that you make the correct decisions for your situation because it will impact your current and future financial picture. Because of this, and because employee benefits can be complex, I'm going to take you through the most common benefits you may be offered.
My team and I are happy to help you determine the benefits best for your situation. Just call 269-218-2100 to schedule an appointment or contact us on our website.
Investing for Retirement with Your Employer’s Plan
Let's start by looking at something that can help you save for a secure retirement: Your 401(k), 403(b), or 457(b) plan. These employer-sponsored plans allow you to put a portion of your paycheck away for the future and grow your money over time.
Contribution Limits and Employer Matching
It's important to realize that there's a limit to how much you contribute to your employer-sponsored plan each year. For 2023, if you're younger than 50, the most you can put in is $22,500. If you're 50 or older, you can contribute up to $30,000. These limits will likely be higher for 2024, so watch for this information.
We encourage you to contribute as much as possible to your 401(k). And your employer may help. Many companies offer to match a part of what you contribute, which is like free money for your eventual retirement. So, if your employer matches, try contributing at least enough to get the entire match so you aren't leaving money behind.
Investment Options and Risk Profiles
You'll find investment options in your 401(k), 403(b), or 457(b) plan, possibly including stocks, bonds, and mutual and exchange-traded funds. Each option has its level of risk and potential reward. Finding the right mix depends on your comfort with risk and retirement goals.
We recommend you speak with a financial professional to determine which investments work best for your situation. My team and I are happy to help you; call 269-218-2100 to schedule an appointment or contact us on our website.
Tax Advantages and Compound Growth
Here's where the real magic happens: Taxes and compound growth. The money you contribute to your 401(k), 403(b), or 457(b) plan is often taken out of your paycheck before taxes. This means you lower your taxable income today and pay taxes only when you withdraw during retirement – when you might be in a lower tax bracket. Plus, your contributions can grow over time, and the growth itself can earn more growth. It's like a snowball rolling downhill, getting more significant as it goes.
Remember, your employer-sponsored retirement plan isn't just about retirement; it’s about taking control of your financial future. By understanding the ins and outs, you're setting yourself up for a more comfortable and exciting journey.
Even with these explanations, selecting your 401(k), 403(b), or 457(b) options can be confusing. My team and I are happy to help. Just call 269-218-2100 to schedule an appointment or contact us on our website.
Unlocking Health Savings Accounts (HSAs)
A Health Savings Account (HSA) is a specialized savings tool tailored to help you manage healthcare expenses. Often, HSAs are available in conjunction with high-deductible health insurance plans, and they come with several tax benefits:
Contributions are often tax-deductible
The money grows tax-free
Withdrawals for qualified medical expenses are tax-exempt.
A critical note about HSAs is that they belong to you and are not employer-dependent, meaning you take them with you if you change jobs.
HSAs are a powerful tool that reshapes how you tackle health costs. HSAs provide more than tax benefits – they offer investment opportunities, too, allowing your contributions to grow untaxed. This dual-purpose potential lets you handle current medical needs while stealthily building a tax-free safety net that you can use to pay for future medical care.
Making the Most of Flexible Spending Accounts (FSAs)
Flexibility is a theme that continues to shine in the realm of employee benefits, and Flexible Spending Accounts (FSAs) are prime examples. These accounts offer an intelligent and tax-efficient approach to managing healthcare and dependent-care expenses.
With FSAs, you contribute a portion of your pre-tax income into the account and then use the money throughout the year to pay for your medical or dependent-care expenses (you must have separate FSA accounts: one for medical, another for dependent care). However, there's a twist – the "use it or lose it" rule. Any funds you contribute must be used for eligible expenses within the plan year; otherwise, they vanish. This makes precise planning pivotal for maximizing your FSA benefits.
Safeguarding Your Loved Ones: Life Insurance and Disability Coverage
Many employers offer a small life insurance policy as part of the benefits package. Often, the employer covers the cost of the policy in full, or you pay very little. This benefit can be helpful for your survivors, but frequently, the death benefit isn't enough to replace your income. It may be wise to buy additional life insurance to cover your family should you pass away unexpectedly.
Your employer may also offer short-term and long-term disability insurance. Short-term coverage steps in when health issues prevent you from working temporarily, offering vital income replacement. It acts as a lifeline, ensuring financial stability in the face of income interruptions. Long-term disability insurance takes over when health challenges extend over a longer time. This coverage safeguards a steady income stream, offering more than just monetary relief – it safeguards the lifestyle you've crafted.
A word of caution: When you have short-term and long-term disability and life insurance through your employer, you may be unable to take it with you if you change jobs. So, consider buying individual plans to be sure you’re covered.
Carefully Selecting Your Employee Benefit Options
As you consider your selections before annual open enrollment, recognize that each benefit option helps shape your immediate circumstances and your financial future. Every choice you make is a building block toward your financial well-being and peace of mind.
Before you finalize your selections, take a moment to think about your unique financial goals and family needs. Delve into the potential consequences of each decision for your present and future budgets.
Remember, my team and I are here to help you navigate your employee benefits so your benefits package helps you today and in the future. Call 269-218-2100 to schedule an appointment or contact us on our website.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend that you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.