Vail Valley personal finance: How your work can work for you
Vail, CO, Colorado
Many employers simply can’t afford to offer benefits like they used to. The benefits that are offered often entail a head-spinning mix of options that increasingly put the decision-making onus – and higher cost burdens – onto an employee’s shoulders.
Employer-sponsored benefits still offer solid, cost-effective options. But to get the most out of an employer’s benefits package, employees must take more personal responsibility for determining the effective use of those benefits and where it might be necessary to supplement what is offered.
The following tips can help make your work, work for you.
Tuning-up your 401(k)
The first step is to take advantage of the employer’s 401(k) plan, if offered. This retirement account is an easy investment choice because it offers tax deductions, tax-deferred growth and often an employer match. Still, several factors worth considering include:
• Short- versus long-term goals: Contributions should fit your overall financial goals. If short-term needs are pressing, investing in other vehicles can help avoid tapping the retirement plan early to meet those needs, which can trigger taxes and penalties.
• Changing jobs: If an employee has taken a loan from his or her 401(k) plan and then changes jobs or is laid off, the loan must be paid back immediately. Taxes and penalties are assessed if the employee is under 59 years old and doesn’t pay off the loan because the loan will be considered a premature withdrawal.
• Overall asset allocation strategy: Your 401(k) investment options should fit your time frame and risk tolerance. A financial services professional can help assess your financial goals. A financial professional can also offer a strategy with investment choices that may compliment the choices offered by an employer’s 401(k) plan.
Weighing your flex spending
Flexible spending accounts offer key advantages to employees, but they must be used wisely. Employees can contribute income on a pre-tax basis to a flexible spending account and withdraw for qualified expenses such as health and dependent care costs. These tax savings are attractive but only if the dollars put into the account are used. If the funding isn’t used within a specified period, it may be lost. Keeping track of receipts for qualifying expenditures is a good way to avoid losing the tax benefits.
Examining your insurance
Most employers offer group life insurance, but the coverage offered by your employer may not be sufficient to meet your needs or may only cover you (the employee) only. Employers often present additional coverage options at an employee’s expense and this might be a good option to explore as it is often cost effective. However, keep in mind that it is usually not transferable if you change jobs. Add additional supplemental coverage from other insurers as needed to ensure you can cover household debt, future earnings, and education funding for your children.
Also, take a closer look at your disability income insurance coverage. One common misconception is that your employer’s coverage is enough, so it is not needed. However, the coverage you might receive from your employer likely is not enough to protect your income. Group coverage from your employer is designed to only replace part of your income. In addition, as your employer pays the premiums, the benefits you might receive are taxable.
Finally, it’s important to regularly monitor and update your employer-provided benefit plans. A financial representative can help you determine if your benefits package is maximized and that you’re doing the most to make work work for you.
Patricia French, is a financial adviser with Thrivent Financial in Eagle and Summit counties. She can be reached at 970-926-0251.