Whether you are entering the workforce for the first time or returning after a break, your first assignment is likely to be choosing benefits. New hires are often given a login to an HR portal and are told to choose their benefits, without always knowing what benefits are available.
But what to choose? Don't stress on your first day! Here are six common benefit options you might want to consider to help stretch your money. Your employer may subsidize some of these. Others, you may have to contribute out of your own pocket, but with pre-tax dollars. This means that you receive a discount of as much as 37%, depending on your income tax bracket.
1. Health insurance is a must
The premium may be expensive, but healthcare coverage is critical for almost everyone. Look for a plan that includes your doctor, as not all providers are in all plans. If you don't have a doctor, consider a plan affiliated with a large hospital as a start. If you're generally healthy, you may consider opting for a cheaper plan, but know that that will likely have lots of copayments. If you are covered by a spouse or parent, you can opt out of health insurance, but verify your coverage before you make that choice. Health insurance can help you get the care you need to keep a small health issue from turning into a large one, saving money in the long run.
2. HSAs, FSA, and Limited-Purpose FSAs are nice add-ons
In addition to health insurance, many employers offer tax-saving Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), or Limited-Purpose FSAs (FSAs for vision and dental coverage only). With these plans, you set aside pre-tax dollars and use the money for those out-of-pocket costs not covered with insurance. HSAs are only available with some types of healthcare plans, and money you don't use now can be used in the future. FSAs and Limited-Purpose FSAs are both use-it-or-lose-it accounts. You can contribute up to $2750 a year pre-tax, which is a lot of money to give up if you can't spend it. Contrast that with an HSA: the pre-tax deposits in an HSA are yours forever, so contributing can be a way to save for future healthcare expenses, including when you are retired.
3. Disability is (usually) more important than life insurance
Many employers offer employees the opportunity to buy discounted life insurance and long-term disability insurance. If you are young and can afford coverage, disability insurance can be a good choice. With disability insurance, your livelihood is protected if you become unable to work, which is a key risk. Life insurance is important if you have dependents or if you have a mortgage, but if you are a single renter, you probably don't need it.
4. Retirement plans matter, no matter your age
If your employer offers a retirement plan, it's a good idea to get yourself signed up. Although you might not be able to afford a full contribution at your first job, consider contributing enough money to get any match your employer offers, because that's a tax-free increase in your compensation. The tax code allows for many different types of retirement plans. Among the more common are 401(k) plans at for-profit companies and 403(b) plans at non-profit organizations, both of which allow workers to make contributions with pre-tax dollars. Your money then accumulates tax-free until retirement.
5. Stock purchase plans can pay off
Stock options may have been given to you as part of your compensation plan. In addition, many public companies (and some private ones) allow employees to buy stock with each paycheck, usually at a discount to the market price. If you can afford it and you are comfortable with your employer's prospects, this can be an excellent deal because you are able to accumulate shares regularly and with a lower cost basis (and no commission) than you could otherwise. Some stock grants depend on how long you are with the employer; you may have to work a certain number of years before your stock or your options are fully vested. Stock you buy with your own money is yours no matter what.
6. Transit benefits are a great deal for commuters
If you drive or take public transit to work on a regular basis, transit benefits allow you to cover bus fare, train fare, or parking expenses with up to $270 per month in pre-tax dollars. If you take public transit regularly, this is a fabulous bargain: the monthly pass that gets you to and from work should get you around on weekends and holidays, too. Not all employers offer it, because not all employees use it. If you have free parking or work remotely, you may want to skip the transit benefits option and choose a benefit that makes more sense for you.
If you decide that your benefits package isn't working for you, don't worry. You can probably find a way to spend money in your FSA, and you don't have to change jobs to change benefits. You can make new choices when your employer holds open enrollment, usually at the end of the year. Now you can concentrate on more important things, like remembering where you parked.
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