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Learn how you can navigate open enrollment season and maximize your benefits to their fullest potential!
Making the Most of Your Benefits
When we began our series about open enrollment last week, we got into some key things to consider when weighing the pros and cons of different health insurance options.
While health insurance is typically the biggest decision couples and families make during open enrollment, it’s not the only one.
There are so many benefits that can save you some serious money, protect your family’s finances, and give you some significant tax benefits.
I don’t want you leaving money on the table which is why I’m glad Matt Miner is here today on the show.
He’s a fee-only, fiduciary advisor with PLC Wealth Management, LLC who specializes in helping families to make sure their finances align with their goals, priorities, and values.
He's also the creator and host of Work Pants Finance podcast.
In this episode we’re discussing:
- the biggest mistakes couples make with their benefits
- How to protect yourself with disability insurance
- what to look out for with your 401(k)
Let’s get started!
Resources to Save serious Money
Are you looking for more help with maximizing your benefits and saving more money? Here are some resources:
- Best Budget and Money Apps: Personal Capital, Tiller, Zeta, HoneyFi, and Mint
- Grow Your Stash Faster: High Yield Savings with CiT Bank
- Free 401(k) Analysis: blooom
- Jumpstart Your Marriage and Your Money
- Simplify and Enjoy: Financial Freedom for Families
- 4 Tips to Make Filing Your Taxes Easier
- How to Find the Best (and Affordable!) Health Insurance Plan for Your Family
- How to Maximize Your Retirement with Your 401(k)s
- Insurance Coverage Families Needs with Matt Becker
Thank You to Our Sponsor Coastal!
Support for this podcast comes from Coastal Credit Union! If you’re living in the Raleigh Durham area and looking to bank better, come check out Coastal today.
Did you know that Coastal offers a Health Savings Account? If you have a high deductible health plan, you need to take advantage of an HSA.
Find out more about what Coastal offers here!
Key Takeaways on reviewing your work Benefits
Before we wrap up, I want to focus on a few key takeaways I got from speaking with Matt and preparing this episode.
- Maximizing your benefits is well worth your time.
- Spreadsheets are your friends.
- Tax planning shouldn’t be a once a year consideration.
If you want to discuss this more, please come chat with us on Facebook in the Thriving Families Group. We’re supportive. We’d love to see you there!
Maximizing Your Benefits During Open Enrollment
Elle Martinez: I will say I am thrilled about why we're talking about open enrollment, but I have to be honest. This is something that I agree with the community. It seems sometimes overwhelming, but I appreciate you coming.
Matt Miner: Man, I wouldn't have missed it for the world. And I agree with you. It can seem overwhelming, but this is one of those topics where the goodness is in the details. So ready to go, where you want to go today.
Elle Martinez: When you do open enrollment, the reason why it's so important is because you're making a lot of big decisions for the upcoming year. And typically people focus on those big benefits to 401k health insurance, dental, whatever, but there's so many things and components to it.
It used to be a packet. But we're now in the digital age, but you get from HR these attachments of 20 to 30 pages for these benefits. How do you navigate through that?
As a financial planner, you've worked with couples and families, let's just start off with, are there certain things where you see couples are leaving money on the table, or they don't know how to tackling their benefits?
Getting Big Savings with Health Insurance
Matt Miner: Yeah. So there's just a lot that we could unpack there. And I think that we're going to get to some of this as we go along.
One of the reasons that people start with, for example, retirement and medical benefits is because those really are often the two most financially impactful portions of that thirty-page benefit packet that you received.
So even though we're going to talk about everything, we definitely don't want to give sure shrift to those too.
So, talking about the medical benefits, first of all, I guess, I just want to say this is one where you're going to have to dig in and look at the numbers for your family.
Actually look at what you spent in previous years. Look at types of budgeting for health care, to the extent that you can, for the upcoming year.
For most healthy families, the qualified high deductible plan options, sometimes abbreviated QHDP, on your paperwork there. And then pairing that with a health savings account is usually going to be the most economically beneficial option.
It's not uncommon to see people switching from the more expensive healthcare plan to that HSA type plan save between $2,000 and $5,000 per year, just in premiums.
So you gotta really dig into how those plans work, even in certain cases, the more expensive plan may or may not [be] the type of coverage that your family is actually using or needing.
And so you don't necessarily want to go with it just because it's more expensive because if you're not able to effectively use that benefit for however you're using health care, then you're definitely better off with the lower premium.
Dental and Vision Insurance: Is it Worth it?
Matt Miner: Moving on from there, I think maybe we'll talk about retirement a little bit more later so then going on to those other benefits, like dental or vision.
One way to look at your vision and dental benefits is to ask whether you were able to successfully use them last year.
In fact, almost any benefit that might be offered to you before you sign up for it. If it's going to cost you something, you look at whether you used it last year.
A lot of times, vision and dental plans are almost just like a way of financing, something that you might pay for more cheaply out of pocket.
The other thing that you don't get when you use a vision or dental insurance is you're not going to have any ability to negotiate price with the providers.
Sometimes just that flexibility may make it worth your while to skip these benefits. So you just really have to look at what it costs and how your family uses it.
Elle Martinez: Yeah, that definitely was the case with us. you bring up a lot of good points.
Years ago, before we switched to that high deductible plan, when they initially offered it, I'm going to be honest, Matt, the first thing when we heard high deductible was like, wait, we're on the hook more?
What we discovered was when we ran the numbers, It gave us more flexibility because we had the lower premiums and we'll talk about, tax advantages accounts , but we saw that it was for us out of pocket, a better deal to go with a high deductible plan. So definitely running the numbers.
With dental, we had a situation where, based on the employer paying for my husband completely, like you said, negotiating, we talked with our dentists and they had a plan that is actually cheaper for us to prepay for the year to them directly, and then take care of the rest of us.
It was a good amount of savings. I know sometimes it seems intimidating to run the numbers, but you'll be amazed and it will make the decision so much easier when you have that in front of you and then you can make a decision that best fits your family.
Matt Miner: No, that's a great point, Elle. You also mentioned another piece of benefits planning, but it is kind of a creative part, I guess. And again, requires looking at the numbers, but sometimes it is most beneficial to have just the, just the employee on their employers plan and then to look at other ways to finance benefits for the rest of the family.
So I've even seen this with health insurance. In fact, we've done this in our own family, where there was a year where it was almost like a pricing anomaly where me and the three kids were on the employer plan.
We actually bought my wife's coverage through Obamacare. And then there have been other times where we've paired it with like a Christian healthcare sharing ministry plan.
And so you just have to look at what is available and how you use healthcare. And sometimes there's sort of hacks or surprising savings out there.
This is one where it's definitely worth your time to not just do the same thing you did last year and move on.
How Health Savings Accounts Can Save You Significant Money
Elle Martinez: I do want to talk about, what we mentioned with tax advantage accounts. when you are looking for example, health insurance, We're mentioning high deductible plan and account, like the HSA can be so powerful because you're saving now and saving for later.
Do you mind just briefly kind of describing the, benefits of including tax planning?
I know it's not the most exciting part of financial planning, but it can have a significant win for a family.
Matt Miner: Yeah, absolutely. Okay. So there's a couple of key things that are one thing to know, and actually this, this relates back to that sort of hack that I mentioned about buying some of the care outside of the benefits plan is that for most benefits you are paying with pretax dollars. And so that includes your health insurance premium.
So when you do that analysis between buying through the employer and buying on your own, or even buying on your own for a portion of the family, Be sure that you're making an apples to apples comparison by either using all pretax or all post tax dollars in that analysis.
Okay. So that relates to the dollars that you use to pay the premium. What you actually asked me about was how the healthcare savings account amount works in this plan. And there are a few neat things about that.
One of the things that probably most people know is that money that goes into an HSA is deductible from income. And it's deductible from income for your federal tax return.
And it's deductible from income for your state tax return. What not everybody knows is that, if your HSA withholdings are deducted from your payroll, they also miss out on the payroll taxes.
So that's the social security tax and the Medicare tax. This is as far as I know, and I think I'm right, the only place where anybody can dodge, not only the federal and state tax portion, but also the payroll tax portion there.
So if you're a 22% federal bracket here in North Carolina, a 5% state tax that's 27% and another 7.65% of that year, like nearly 35% tax savings on those HSA dollars.
Now, as far as how you can use them, the IRS publishes plenty of lists, but in general, you can use these for most kinds of medical care, including the famous dental envision that we were talking about earlier.
You can also not spend this money and roll it forward. To use for future years, or actually once you achieve a certain age in retirement, the money becomes even more flexible, can even be used to pay certain types of premiums in retirement.
The HSA it's kinda like a triple threat, as far as the benefits from a tax planning standpoint. And it's one of the places where we encourage people to go. If not first, then second from a savings and investing standpoint.
First might be getting your full employer match. But then from there, the HSA is typically going to be your most advantageous type of money.
maybe after that employer match and it has a benefit over the employer match, which is that it is not nearly as tied up as a 401k type retirement plans are where basically that money is locked away until you at the very least leave the employer.
Tax Savings for Parents
Elle Martinez: Wow. So we appreciated the savings, but what we did is with our high deductible plan, those premiums, we rolled it into the HSA.
Once we really understood all the benefits, Matt were very excited about that. But speaking of excitement, tell me more about this childcare, advantages and benefits that may be available to parents to kind of offset some of the costs.
Matt Miner: Yeah. So there's two main things that I want to touch on there. One, and this is the one that would be offered through your employer is the dependent care FSA.
So you'll sometimes see DC FSA and these plans have rules that vary a little bit from employer to employer, but the basic gist is that you can put away a chunk of money before tax.
Now this one's going to be before your federal and state income tax. And then if you use that money to pay for eligible childcare expenses, then you can pay for those childcare expenses with pretax dollars.
The idea here is to give some support to a working families because this childcare is enabling the working spouse to, perhaps to continue to work.
Then, one of the big watch-outs with that account is this is use it or lose it money. So again, when it comes to that DCFS, like your health care benefits, you're going to have to actually do the budgeting exercise and make sure that you can reasonably spend through that or money .
One that you can layer on top of this and this won't be through your employer, but it's just something to keep in mind will be your ability to get the childcare tax credit.
The main idea would be that you can potentially fully access both that tax credit. And the tax deduction that you might get from it, your DCFS, but yeah, I need to keep good records and you probably need to talk to your accountant before you make the decision about exactly how to proceed with this.
Because for a middle income family, you may want to. Be sure that you're getting the full benefits of the tax credit before you worry about the tax deduction of the DCFS. So this is going to relate to both your level of income and your total level of childcare expenses. And while I said, you can use both of them, you can't use them both to cover the same dollars.
And so you need to have adequate spending on childcare or you need, you need to have so much childcare expense need that you would actually have, you know, enough expense to. both spend the DCFS and qualify for the tax credit. So that's how to think about that.
Why You Should Talk with a Financial Planner
Elle Martinez: I appreciate you bringing that up. I'm talking to accountant a financial professional, but I also want to say like, this is one great reason why you would like to work with a financial planner. because to get that personalized financial advice you really need someone to sit down and look at your individual numbers and your individual circumstances.
So I appreciate you giving us this overview and information. Just to clarify for everybody we can't give you specific financial advice, because it really does vary. family to family with your particular circumstances.
We're going to still keep going and talk about the different benefits that could be available and how to maximize that.
How Disability Insurance Can Protect You
Elle Martinez: And I do want to talk to you about disability insurance, because I've had two friends within the last seven years, use it.
Relatively healthy and something happened. They didn't realize it was something they needed until, you know, thankfully they had that benefit.
So could we kind of go over how disability insurance works?
Matt Miner: Yeah. And I guess I'm going to go off script a little bit here and talk about both employer-provided and private disability insurance, with the disclaimer that I don't sell the latter, but I do recommend it for anyone who still thinks that getting a paycheck is quite important. So that's basically anybody who's, not yet financially independent.
So when you think about employer provided disability insurance, you're typically going to see this offered as short term and longterm disability insurance.
It depends on the kind of company that you work for. Some employers just automatically cover a certain portion of short term disability. So you want to read about that.
Others want you to sign up for something. And so taking the short term disability one first.
In general, if there's a premium associated with that, unless it's just incredibly low, like almost insignificant in your paycheck, you're going to want to handle any short term disability needs that you have through your emergency fund.
So your emergency fund should be three to six months of expenses. At least if you're extremely highly compensated or have a really high budget, you might even push that towards 12 months.
In any case, you've got, say three to 12 months of expenses in cash. That's going to let you handle any short term disability or get through any elimination period on your longterm disability policy.
Now, when it comes to a longterm disability policy, again, my opinion is that everybody needs this and most people probably need at least some that is separate from their employer.
The reason for that would, would be if you were ever between jobs and became disabled. You could be in a real bind that way, or if you, we're somehow changing jobs and we're not eligible to add that coverage. And again, you became disabled. It's just something that you want to have in place.
So you look at what the employer offers. It's typically going to be in the neighborhood of 60%. Of your gross pay. And then you need to recall that when it comes to employer provided disability insurance, that's going to be fully taxable to you as income.
So not only, is it of course less than your gross pay, but it is also going to get taxed before you get the money. When you buy disability insurance privately, you're going to pay with after tax dollars. And so you're going to receive after tax dollars, from that policy.
So that's, that's how I think about, about both short term and longterm disability insurance, and how I think about whether it's coming from the company or whether it's something that you buy on your own.
Elle Martinez: thank you. it's one of those benefits, like when you're healthy, when things are going well, you're kind of sitting there and some employers do offer that, you know, for the employee, some, you get a discount or a significant discount. So when you're weighing this, also consider if we lose as if I, you know, Become temporarily or longterm disabled.
How important, like you mentioned, is that paycheck coming in for us to stay afloat or keep going. So I appreciate you mentioning that.
Matt Miner: Yeah. And I guess there's just a couple last things I want to say on that as I think about it, you know, I don't have the exact statistics in front of me, but almost no one would argue that you don't need life insurance. Especially on a, on a primary earner, but you actually need it probably on both spouses, but most people would agree that you need that.
And I would just say that when it comes to disability insurance, your likelihood of needing disability insurance to pay you is so much higher. even the fact that you know, to people who've had disability claims. in recent periods, I think just like, sort of to illustrate that I almost put disability insurance at like the very top of the heap in terms of insurance that you're going to fund, even, yeah, if you can't, maybe by as much as you wish you could by him. It's a, it's a really important insurance to have, because if you think about it, there is no other insurance for a loss of income.
You know, if you become injured and you have medical bills, you can either find a way to go on public assistance or you can have those medical bills. Discharged in bankruptcy.
You know, even if you think about something terrible, like losing your house to a fire and it was under-insured, or for some reason, it was not insured, that's a few hundred thousand dollars perhaps, or a couple of hundred thousand dollars. You can potentially recover from a loss of that magnitude.
If you think about your future earnings as being 1 million, 2 million, 3 million, $4 million, that's a magnitude of loss that, almost that is it's unrecoverable because you've lost your ability to generate income. If you become so disabled.
Elle Martinez: Yeah. And this is why it's so important, even though you get this packet or you're printing out the documents and reviewing it, it's absolutely key.
Understand what benefits are available to you. And if you have these through your employer, take advantage,I hope you never have to use it, but then you know where to go and get that coverage that you need.
Getting the Most from Your 401(k)
Elle Martinez: So, I know we can talk about this all morning because there are so many different things, but I do want to kind of wrap up with another key thing that couples and families review around open enrollment.
Even though you can check on your 401k adjusted anytime during the year, this is the time of the year where people are like, well, how have things been doing?
What things should they be? Discussing or be concerned about with her 401k?
I know that's kind of a broad question, but just wanted to ask you from the financial planner side, what are you seeing that couples are doing? Or aren't doing?
Matt Miner: Yeah, I think there's a couple of really important things on this one. This is a great time to just check in.
Do you understand your overall investments and are they doing for you what you want them to to do. And so, you know, if you are in a position to be making investments, it's important to know what they are and how they work.
Then make sure that the investments that you have are the right ones that are going to get you and your family from point a to point B, you know, in the timeframe that you want.
It's not uncommon for me to have clients come in and for some reason have a large cash balance in their 401k plan. So this would be a good time to check.
Even if you feel you need to be invested conservatively in your 401k plan, there's basically never any reason to have. Cash in that plan because it's cash. The point of cash is ready, access money, and the 401k is like the opposite of ready access money. So that's, that's one watch out that I see.
In general, you can find plenty of online risk questionnaires to try to assess, where you might be. Most people who are still in the acculmulation stage should be somewhere because between 65 and 90% equities and, a great place to start. If you're. Employer offers it is going to be the Vanguard target date, retirement funds.
These funds are globally diversified for both stocks and bonds, and they very nicely appropriately match, stock and bond exposure. Based on your projected retirement date. I think that there's still like 50, 50 stocks at the projected retirement date. So these are super reasonable portfolios.
Schwab also has some, some great target date funds. BlackRock does as well. These are not endorsements.
Keep Your Fees Low
Matt Miner: They have a quality process we're going to want to look for in those target date funds is to make sure that you, the funds have a reasonable expense fee and that's going to be somewhere between, five, 100th of 1% to certainly no more than a one half of 1%.
If you see a fund that is, you know, well, North of that at 1% or 1.5%, this is a fund that's been designed to make the asset manager wealthy and not to make you wealthy. So in that case, you may want to look at other index fund options that are in your, that are offered to you in your 401k.
Another big consideration here is going to be pretax versus Roth. And this again is kind of an individualized discussion, but for most people at retirement, if they can have a mix of pretax and Roth money, that will be helpful to them in managing their income taxes in retirement.
My own family's goal would be to be 50% Roth and 50% pretax at retirement because we want to have that flexibility that that will enable us, for a tax planning standpoint, when we get there.
Where Should We Invest?
I think then the last thing I would say on this L would just be that for most people, they're going to want to go ahead. Like the first investing that they're gonna want to do is to get the full employer match within their 401k or four, three B retirement plan.
So job one is understand how that matching program works and be sure that you're investing at least enough to maximize that match, that matches really part of your comp.
If you're not getting that full match, you're leaving money on the table. usually then for most people, once they've maximized that match, they might want to think about doing some Roth IRA funding, either a regular Roth IRA or a backdoor Roth IRA.
If your income is so high, that it excludes you. And the reason for that, for doing that Roth contribution before you max out the 401k, is that Roth money again? It just has some flexible characteristics that 401k money does not.
finally, if you've gotten that employer match and you've maxed out your Roth for the year, then it's a good time to go back and see if you can't top up that 401k or four, three B and get the maximum there.
There are, all of these accounts, the IRAs and the have catch up provisions that kick in at different ages. and in fact, we forgot to mention this earlier. The health savings account also has a catch up provision. So you want to look at that in your case and see if there is additional money that you can sock away in these accounts.
So. When it comes to HSAs, there's also maybe a less known hack there. The family contribution limit for 2020 is $7,100, but if you are old enough to be eligible for the catchup contribution, you can open another HSA in the name of the spouse, whose name is not on the first HSA and you can get an extra thousand dollars catch up contribution in there.
So if you're at 7,100 for the family, you can then get a thousand dollars catchup contribution for the first spouse gets you to 8,100 and then another thousand dollars catchup contribution for the second spouse gets you to $9,100. And so this is just another opportunity to continue to push those tax advantage dollars, a higher and higher in these investment accounts.
Again, some of which are administered as benefits through your work.
Elle Martinez: Yeah, well, Matt, you've done an incredible job. I know we're not going really deep because the time, but we covered a lot of ground and I appreciate this.
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This episode was originally released September 2020. Show notes have been updated September 2021.