In addition to your base salary, your employer shells out plenty more for a variety of benefits. The cost of providing benefits such as paid vacation, health insurance, and a retirement savings plan adds up to another 30% of pay for private-sector workers, on average.
The value to you can be even greater. Some key benefits are all about helping you increase your wealth. All you need to do is make sure you choose the best options within various employee benefits.
Retirement plan. Okay, this benefit is an obvious way to build long-term wealth. That said, you want to make sure you are taking advantage of the options that can turbo-charge your savings.
If you are offered a company matching contribution, make sure your contribution rate is at least enough to snag the biggest possible match. (Hint: if you relied on auto-enrollment when you started your job, you may not be contributing enough.) You should also check to see if your plan now offers a Roth 401(k) option. Over the past few years, many employers have added this feature. With a Roth 401(k) you set yourself up to have tax-free income in retirement. That can be incredibly valuable.
Health Insurance. Many employers offer a few types of plans you can choose from. If you have the option to enroll in a high deductible health plan (HDHP) it is worth serious consideration. Sure, the mere name is off-putting: no one naturally likes the sound of “high deductible.” Don’t worry, it’s not necessarily a budget breaker. In 2019 the minimum deductible this year to be considered an HDHP is $1,350 for individual coverage and $2,700 for family coverage.
If you could cover that deductible from your emergency fund or income, the HDHP allows you to open a health savings account (HSA).
An HSA is an unbeatable wealth builder. The money you contribute to an HSA delivers three tax breaks. Your contribution is tax-deductible, your money grows tax-free while it is invested, and when you use the money to pay for qualified health care expenses there is no tax bill. (Read more on how an HSA can be a valuable stealth retirement plan.)
Education Benefits. The more you polish your skills, the more likely you can make the case for raises and promotions. Manage to save and invest some of those pay bumps can play a significant role in building wealth over the long-term. At a minimum, make sure you sign up for any optional on-the-job training. If you want to take a course –online, or a community college – or pursue a degree, schedule a chat with H.R. to see if there are any programs to help pay for the cost of building your skillset. The I.R.S. allows employers to pay an employee up to $5,250 in annual education assistance without that money being counted as taxable income. Not all employers offer this benefit, but be sure to ask.
Flexible Savings Account. You may be aware of the standard FSA that allows you to use pre-tax dollars to pay for qualified health care expenses. You can even have an FSA if you also have an HSA, but one big caveat is that money in an FSA can’t be saved indefinitely; you typically have just 12-15 months to use the money you contribute in a given calendar year. That said, an FSA is a tax-smart way to cover some health care expenses so you can let your HSA account keep growing.
There’s also a dependent care FSA that allows you to sock away money to pay for childcare, or the care of an adult-dependent, such as a parent. This year individuals can set aside $2,500 in a dependent care FSA and married couples that file a joint return can contribute $5,000. That money reduces your taxable income. If, for example, a couple is in the 22% federal tax bracket, they save $1,100 in federal tax on their $5,000 contribution to the dependent care FSA. The less you pay in tax, the more funds you just might have available to put toward building more wealth.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.