Episode Transcript
[00:00:00] In this episode, we give you some quick tips for how to optimize your employee benefits this open enrollment season. Let's get started. Let's get some money from new money new problems. It's the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
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[00:00:38] I'm Brenton Harrison, and this is the new Money New Problems podcast.
[00:00:44] Hello. My name is Brenton Harrison of New Money new problems and your host for the new Money New Problems podcast. Um, this is an episode that's going to be something that's similar to one that we did last year, and the reason that it's similar is because it's open enrollment time for most people out there. So it may be a recap, some things we discussed in the past, maybe some tips that I've picked up over the last year of planning that I wanted to share. But this is something that's just a quick reminder as you fill out that packet or go to that website to elect your benefits of what you can do. Now, I will tell you that we have a second podcast that's not connected to our work at new money new problems escape student loan debt. We are also doing an employee benefits episode on that podcast specific to how it impacts your student loans. So if you have federal or private student loans and you want some more detailed advice as to how some of these things impact those financial accounts or financial loans that you have, we'll put the link to that in the show notes so that you can check out that episode as well. And even though we are doing the secondary episode on student loans, I will start with something that's student loan related when it comes to your retirement accounts. Uh, if you have federal student loans and you are using an income driven repayment plan to pay those loans, it's highly likely that this is the first year in a few years since pre pandemic that you're really being in a position where you're having to consider, what is my taxable income? Because that taxable income impacts what you end up paying. Or I should say your adjusted gross income impacts what you end up paying on these IDR plans. So if you're in this scenario where you have these federal student loans and you're on one of these plans, I want to encourage you, if you're looking at things like pre tax retirement contributions as compared to a Roth contribution, to consider pre tax as the ideal objective. Just as a recap, pre tax means that you're putting dollars aside in this account before you pay income taxes on it. The best example I can give you is if you have $2,000 that was going to be on your paycheck, and you decide to put $200 into your 401k, you're going to be paying taxes on $1,800. Even though your paycheck was technically $2,000, the 200 that you put into your retirement account was removed pre taxes. Now, the downside to that plan is, in your retirement years, you have to pay taxes on those dollars as they're withdrawn. So if when you're 65, you take $10,000 out of the 401k, then you pay income taxes as if you earned $10,000. That is different than a Roth account. A Roth account you put in money that has already been taxed, with the reverse being in retirement. When you withdraw those funds, you pay no income taxes. I very regularly see people who have their retirement contributions set up. So. So they have federal student loans. They're on an income driven repayment plan, but they're doing Roth retirement contributions to a. An IRA. So if you're in this scenario, be aware that we are now in the months where for the first time since March of 2020, your loan service is going to be looking at your income. If you have an IDR plan, I would encourage you go pre tax with your retirement contributions as compared to a Roth account. And let's stick with pre tax employee benefits, and let's go towards some things like health insurances, dental insurances, and how you can leverage those tools using, you know, my favorite employee benefits, health savings accounts, flex spending accounts, independent flex spending accounts. This first thing that I'm going to talk about is purely off of personal experience. I had a hell of a year this year when it came to dental expenses. I had to get my wisdom teeth taken out. In the process of that, I cracked another tooth. I ended up having to have all these procedures, and all told, one tooth in my mouth ended up costing about $2,500 to be repaired. And the reason that it cost that much is because I got to the end of the year, and I essentially ran out of dental coverage. I maxed out my coverage. And we haven't talked about this in the past, because dental coverage is something that's, you know, kind of a smaller subject, but there's an episode, um, of a podcast that I'll put in the show notes called the economics of everyday things that actually talks about how dental insurance is structured. And many people, when they think about dental insurance, they think about it like health insurance, where it's like I pay a certain percentage, and at some point the dental carrier will step in and take over the rest, when in reality, dental insurance operates more like having gift cards for specific procedures. Right? Uh, we have $100 gift card for a cleaning. We have a dollar 500 gift card for this root canal. But the problem is, once those gift cards run out, there is no dental insurance coming in to take up the rest of the costs. If you exceed how much you have available for those procedures or how much you have available for the max plan, you have to pay everything that's extra. So we have a lot of listeners of this podcast who either have dental procedures themselves, we're getting to that age where you start to have some dental problems and have to have things fixed, or you might have young children who are reaching the age where they're doing orthodontics and things of that nature that can cost an arm and a leg if you don't have coverage for it. So I would encourage you to do, especially because dental insurance typically doesn't cost an arm and a leg. Go heavy, go big, go luxurious on the dental benefits, because you don't want to be in my situation where, where I could have been paying like $15 a month more, and I would rather pay that $180 extra for the year than the $2,500 that it cost me to repair that one tooth. And while dental insurance isn't a pretax benefit, we are going to talk about health insurance plans. And as we talk about health insurance plans, I'm really talking about a health savings account. As a recap, a health savings account. In order to open it, you have to have a health insurance plan that's a high deductible health plan. That likely means that it's going to cost a little more the next time that you have to go to the doctor. But the benefit of that is a high deductible health plan because you're on the hook for more if you go to the doctor, is likely going to cost you less in terms of the monthly premium. And unless you have any major health expenses that you're concerned about having the money to pay in terms of a higher deductible or not having a copay, if you're in relatively good health, then you're likely a good candidate for a health savings account. So you can save some money on the front end with that high deductible health plan, but you can also have some pre tax contributions that are made to that health savings account and that HSA has many benefits. We've talked about the fact that it is triple tax advantage. You don't pay tax on the money when you put it in. You can invest those funds and you don't pay tax on the growth as it grows. If you take it out for a qualified health expense, you don't pay taxes on that money at that time either. But one of the things that I often see, and this is the tip for today's episode, is when you open up that HSA, you have to be reminded or remember that those funds actually can be invested. And when you set up that HSA is very common to not remember that fact, because it is likely that your employer requires you to keep a certain amount in cash. So you can open up an HSA, start making contributions, and your employer may require that the first $1,000 in the plan or the first $2,000 in the plan be in cash so that it's readily available in case the event occurs where you want to make a transfer from your HSA into your bank account. But beyond that point, you can set it up so that every dollar that hits the plan is invested. And you can choose your investments in that HSA just like you would in a retirement plan that you have at your employer. But if you have not done that, and I think you would remember if you did it, you are just having those funds sitting cash, no matter how much sits I there. And we come across people who have 20, $30,000 in an HSA that's never been invested because they'd never occurred to them to go and make sure that those dollars were actually in the market. And that is a crucial growth opportunity to not just save for your own health coffers down the line. But you'll also recall that after the age of 65, HSA dollars can be used for any expense, even if it's not health related. So the tip of the day when it comes to hsas is, I would encourage you, if you have some dollars in that account, even if you're just starting to make sure that you go and check the election, that after a certain minimum is met, any additional funds will be invested and actually go in and set those investments. And those investments can be similarly situated or similarly allocated to what you've chosen in your company retirement plan. Next up, flex spending accounts and flex spending accounts are similar to an HSA in the sense that they pay for similar expenses. Right. You can use an FSA for a vision check. You can use it for a lot of over the counter items at your local Walgreens or Dwayne Reed. You can use it for copays and deductibles. But unlike an HSA, an FSA does not require you to pair it with any particular health insurance plan. Now, you can't have an HSA and an FSA, so you have to choose between the two. I would lean towards an HSA if you're in quality health. Uh, and some plans don't offer HSA. Some companies will only offer you an FSA. But an FSA is something where you can put aside dollars for these expenses in the tax year 2024. The contribution limits to these funds is $3,200. But it's important, more important with the HSA, because the HSA can roll over, the FSA cannot. There's a limited amount that you can take from one plan year to the next in 2024. That amount is dollar 640. And there's some plans out there that give you a grace period, so it may not be a flat twelve months. They may say you have until the following April in order to spend the dollars in that account. But if you're setting funds aside in your FSA, you want to be aware of the fact that you cannot change that contribution unless you've had a major change in your qualifying life events throughout the course of the year. Whatever you set up is what you're going to have to keep in terms of that payroll deduction. If you don't have a plan to spend those items, then you're going to be left with the decision of either watching those funds revert back to the plan if you have not spent over the $640, or you have the ability to take over that $640 from year to year. So if you're signing up for that plan, I would first be aware of what that grace period entails or when the period comes when you have to spend those dollars. But I would also make sure you do some quick back of the napkin math on what do I spend on co pays? What do I spend on tums when I end up having to go to Walgreens because I'm having an upset stomach? And make sure that whatever you have in that payroll deduction is more closely aligned with what you're actually going to spend on these items over the next twelve months. And lastly, from my favorite pre tax benefit for a young family, dependent care flex spending accounts. These are accounts where you can put aside dollars pre tax in 2024, up to 2500 as an individual or a person who was married filing separately, up to $5,000 for a couple that's married filing jointly. And these funds that are pre taxed can be used for the benefit of a dependent child or an elderly loved one. And there's all type of expenses for which it can be used. If you're looking on screen and we'll put a link to this in the show notes, you can use it for extended care, a supervised program before or after regular school hours. So like my son is in kindergarten, so kindergarten tuition and above cannot be used for dependent care FSA, but pre k and daycare tuition can be paid for with a dependent care FSA. However, my son does go to both before care and aftercare for school. So even though he is in kindergarten where the tuition isn't covered by dependent care FSA, the extended care program is we can use pre tax dollars and avoid income tax on them, but pay for something we're already paying for in the first place. And the big one that I come across, especially for kids of a certain age, is summer camps. If your child goes to a summer day camp, as long as it is not a sleepover camp, you can pay for that camp with the dollars you've set aside in your dependent care FSA. Now, this is also a use it or lose it account, and it does not have any carryover. There is no dollar 640 allowance. So you definitely want to make sure that you've done some back of the napkin math for what you actually spend so you don't end up with an amount of money that reverts to the plan. But this is something where, if you're already spending for these expenses, I can tell you we sent a significant amount just on summer camp this year. Besides before and after care at school, this is something where you want to make sure that during this period, even if you haven't in the past, you put some dollars aside each pay period in your dependent care FSA. So those are some of the bigger benefits. But after the break, we'll talk about some ancillary benefits, some of which are good to have, some of which you can avoid like the plague, especially if they cost you money.
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[00:14:01] M.
[00:14:06] You're listening to the new Money New Problems podcast. Subscribe now at new Money newProblems.com. welcome back.
[00:14:17] All right. Welcome back for the break. Now we're going to talk about some smaller benefits that can be impactful in some cases. Maybe they're just you showing an abundance of caution, but also some that I'm just not a fan of. So let's start with the one that I'm not a fan of at all. If you sign up for benefits at your job, it's highly likely that there's some base amount of life insurance that's offered to you where if you were to die, your family, your loved ones would get a certain amount of money called the face amount or the death benefit. But it's also highly likely that there's some type of coverage called accidental death and dismemberment or an ad and d policy. And I have seen several times where someone who thinks they have actual pure life insurance, in actuality, they signed up for an accidental death and dismemberment policy. And while an accidental death and dismemberment policy may m have a death benefit or a disability benefit, it only pays a death benefit if the death was a result of an accident. It only pays a disability benefit if you have been dismembered. If you're looking on screen, you can see what does ad and d insurance cover? The loss of a limb, the loss of sight, hearing, or speech, permanent paralysis, death resulting from an accident such as a car crash. But what's not covered are specified recreational activities. So even if it was a result of an accident, but it was a result of an accident like skiing or hang gliding, it would not be covered potentially under that policy. It doesn't cover overdose. It doesn't cover natural causes of illness. So if you die as a result of a cancer or a long term illness, that's not an accident. So if you have to pay for your accidental death and dismemberment, I would say that's money you can keep in your pocket. And I would instead either keep it or divert those funds to buying supplemental life insurance from your employer as well, which is something that pays in most cases, regardless of circumstance, with the exception being if you're committing a crime or certain other things that may be laid out in that policy. So that's one that I'm not a fan of. But there are some things that typically will be roped into things like what we would call like a cafeteria plan. And the phraseology of a cafeteria plan is kind of like the concept behind, oh, I go up to the cafeteria lady and I tell her I want this, this, and this on my lunch plate. And that's kind of what a cafeteria plan is like. Most employers will give you a certain amount of money that you can use to pay for those benefits, and you can split up that money however you want to, to pay for these smaller cost items. So you'll see things on there like a medical bridge plan. And a medical bridge plan is something that is a bridge. It bridges the gap between things that you have to pay for for your health insurance, out of pocket a copay that you have to pay for out of pocket, a deductible, um, the cost of going to the emergency room, ambulatory services. Those are things where you might have to pay a copay or pay until you've met your deductible or out of pocket max for your pure health insurance. Whereas a medical bridge policy may give you cash payments to cover that expense in the event that you incur them. You also have things like cancer insurance policies, and a cancer insurance policy could be something where it is probably you operating out of an abundance of caution, but it could pay for things like, again, co pays, screenings for cancer, experimental services that may not be covered by your health insurance in a peer format, but you want to take that chance. If you're in that circumstance, it's an abundance of caution, because is it statistically likely to occur? It's up to you to determine how statistically likely that may be. But if you've had that happen in your life and it's something that you want to cover, cancer insurance is something that is, again, typically pretty cost effective, but may put you in a position where should you be in that circumstance? You have funds that you don't have to cover out of pocket. You also see things on cafeteria plans, like the ability to pay for credit counseling. You see gym membership discounts that are often overlooked. But I would encourage you this year to actually take some time and read through your employee benefits packet to see if these things that you typically overlook are things that could enhance your life. We see people who have maternity benefits at their job that they're unaware of, adoption assistance, the ability to get, uh, funding and assistance with IVF. You even see people who have the opportunity to do things like counseling and have it paid for by their employer. But you can only use it if you're aware of it. And if you're aware of it, you can decide if it fits into your finances and into your life. So this is a quick episode, but I wanted to make sure that you had these tools in advance of this open enrollment season. Like I said, if you have federal or private student loans and you're wondering how some of these benefits impact those, uh, financial instruments that you have, I would encourage you to check out our partner episode at Escape student Loan debt. We'll put that link in the show notes, and I hope to see you again next week from new money new problems. This was the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
