We created Stewardship Colorado to serve our clients with truly independent advice to help them optimize their financial lives in all dimensions. This month, we will review some common employer benefits offered that you may not be taking full advantage of.
Do Your Estate Plan!
Many companies offer subscription based legal services, yet 70 percent of Americans still don’t even have a simple will. For young families, this is especially troubling as it means entrusting a complete stranger (the court appointed judge) to decide who will become their children’s guardians should the unexpected happen. Another important document is a living will, which allows you to plan your medical treatment in advance should there ever come a time when you are unable to express your personal healthcare wishes. Evergreen is blessed with numerous excellent attorneys and we would be happy to point you in the right direction if you need somewhere to start.
Maximize Income Protection
We all know friends or family who have been unable to work due to an accident or illness, and many employers offer short- and long-term disability insurance coverage. These group benefits provide some base coverage often with the ability to add more with modest payroll deductions. We almost always recommend that our clients add as much coverage as their employer will allow.
Take Advantage of Group Life Insurance
Many companies offer a base life insurance coverage to their employees of either a level amount or a single year’s salary and often the ability to buy more without any medical underwriting. This can be a very convenient and simple way to provide an inexpensive foundation for your life insurance plan.
Child Care or Elderly Parent
Dependent Care Flexible Spending Accounts (FSA) provide a convenient way to set aside up to $5,000 per year, pretax, to pay for babysitting, a licensed daycare facility or an in-home provider. This benefit can be used for children under age 13 whom you claim as dependents, your spouse or other dependents who are physically or mentally unable to care for themselves, or an elderly parent who spends at least eight hours a day in your home and whom you can claim as a dependent. The main benefit of an FSA is that the money set aside in the account is pretax and can be spent tax free. A Coloradan in the 24% federal tax bracket who uses the maximum $5,000 benefit will save 28.63% or $1,431.50 per year. You must plan carefully when using a Dependent Care FSA as the funds cannot be carried forward to a future year.
Health Care Spending
Healthcare Flexible Spending Accounts work exactly like Dependent Care FSAs to pay for qualified medical expenses such as deductibles and copays. The annual limit in 2018 was $2,650, and up to $500 of a Health Care FSA can be carried forward to the next year.
Plan for Social Security Benefits
Social Security is a very important retirement benefit that many Americans are not familiar with, particularly with the strategies
for maximizing the benefits that they are entitled to. Create your online account at ssa.gov and verify your earnings record and projected retirement benefits, and then start thinking about when to take benefits. This issue can be complex as taxpayers may qualify based on their own earnings record as well as their spouse, or possibly even their former spouse. One common mistake is to miss out on the opportunity to receive additional benefits early for those who qualify both based on their own earnings and their spouse’s earnings.
Consider Your ESPP Plan
Employee Stock Purchase Plans (ESPP) can be fantastic ways to make extra money. These plans typically offer employees the ability to periodically purchase shares of their employer stock at a discount, which can be substantial. Sharon participates in the TMobile ESPP, which allows employees the ability to defer up to 15 percent of income into the ESPP to buy shares at an offering price which is 15 percent below the period beginning or ending price, whichever is lower. TMobile stock (TMUS) began the last 6-month period in April trading at $59.62 and ended in September at $70.18. We bought the shares at $50.86 (85 percent of the starting price of $59.62) and were able to sell them at $70, thus netting a 6-month return of 38 percent!1
Review Your 401(k) Deferral
Open enrollment is also a great time to review your 401(k) savings and investments, although you can generally do that at any point in the year. This is a great time to make some fine tuning to your deferral rate to stretch it out over the entire year to make sure you maximize your employer match, which stops when you max-out your contributions. It is also a great time to consider deferring some or even all of your employee contributions into your plan’s Roth option, which allows you to effectively save even more and provides additional tax-planning flexibility in the future.
To Learn More
We work on an ongoing retainer basis and can also provide specific project quotes for any of your planning or investment needs. We offer an introductory one-hour meeting at no charge to allow you to get to know us better and ask us anything that is on your mind. Give us a call at 303.500.1930 or request an appointment at StewardshipColorado.com.
1 All stock purchases include an element of risk, even when bought at a discount. Appropriate allocations should be made while considering risk tolerance.