Maximizing Your Employer Benefits

For most Americans who work for an employer, autumn is open enrollment period. While it’s easy to simply adopt last year’s elections, you may want to take a second look. To maximize your savings, reexamine the benefits available to you. The following are some tips to help you make the most of your benefits to bring you closer to reaching your financial goals.

Health Benefits

If your company offers health, dental, and vision insurance, these can lift a huge financial burden from your shoulders, especially if they subsidize a portion of your family coverage. Here are a few options to consider that if available could add to your health savings:

High Deductible Health Plan (HDHP): An HDHP offers lower monthly premiums and allows you to access a Health Savings Account (HSA). An HSA is a powerful savings vehicle, where you can save money tax-free to use for healthcare expenses (see below). Be aware that the high deductible of HDHPs may mean more out-of-pocket costs if you have high medical expenses; this type of plan may not be well suited if you know you will require significant medical care. Carefully review the annual deductibles and out-of-pocket maximums on all your healthcare options to choose one that will fit your needs.

Health Savings Account (HSA): An HSA is a medical savings account that allows you to contribute and invest pre-tax dollars to save for healthcare expenses. As long as you use that money for qualified healthcare expenses, it is free from income taxes. An HSA account belongs to you even if you switch health plans or employers. Three significant tax benefits of using an HSA are:

1. Contributions are pre-tax (lowering your taxable income).
2. Funds can be invested and grow tax-deferred (or tax-free if used for eligible expenses).
3. Withdrawals are tax-tree if used for qualified medical expenses, provided you are enrolled in an HDHP.

Find a list of qualified expenses in IRS Pub 502: Medical and Dental Expenses.

To contribute to an HSA in 2025, your HDHP must have a deductible of at least $1,650 for self-only coverage or $3,300 for spouse, children, or family coverage. The maximum 2025 contribution limit for an HSA is $4,300 for individuals and $8,550 for families. If you are age 55 or older, you can contribute an additional $1,000. You have until April 15 of the following year to contribute for the year prior (i.e. you have until April 15, 2026 to make your 2025 contributions).

Health Maintenance Organizations (HMO): HMOs have their own network of doctors, hospitals, and other healthcare providers. Because they agree to keep to certain payment levels, HMO plans are generally more affordable; however, they often cover less and have more restrictions.

Preferred Provider Organization (PPO): PPOs also utilize a network of providers, and the cost of services varies depending on whether you receive care from within the network or out-of-network. PPO plans may have higher premiums and deductibles because of this flexibility.

Flexible Spending Accounts (FSA): If you aren’t eligible for an HSA, an FSA is another option for healthcare savings. Like HSAs, FSAs allow you to contribute pre-tax dollars for healthcare expenses. Unlike HSAs, FSAs are “use it or lose it” – you lose unspent dollars at the end of the calendar year, though many plans allow you to carry some of it over into the following year. If you can estimate the cost of your medical and dependent care expenses for the year in advance, an FSA can be an excellent resource for reducing your taxable income.

The contribution limit for a healthcare FSA in 2024 is $3,200, with a maximum carryover of $640.

A dependent-care FSA works the same way but is meant to help save for childcare expenses. The 2024 contribution limit for a dependent care FSA is $5,000 for individuals or married couples filing jointly, or $2,500 for a married person filing separately.

Supplemental health insurance: Some employers offer the opportunity for employees to purchase supplemental health insurance such as accident coverage or critical illness coverage. Supplemental plans aren’t primary insurance coverage, but can help cover the gaps such as deductibles, copayments, or other out-of-pocket costs associated with medical expenses. They usually pay policy holders directly.

Life Insurance and Other Coverage

Life and Accidental Death & Dismemberment (AD&D) Insurance: Life insurance offered through your employer is usually based on a multiple of your salary and can vary for basic life and AD&D insurance. Basic plans generally offer a low amount of coverage, but many employees can purchase supplemental life insurance for up to five times their annual salary at discounted rates through their employer. Higher rates of coverage may require you to complete a health questionnaire or even complete a medical exam to determine your eligibility and rates for coverage. The discounted rates often available through employer-sponsored life insurance tend to be highly competitive and worth considering.

Disability Insurance: Disability insurance provides coverage if you are disabled and unable to continue working. It is usually divided into short-term disability for a period of disability lasting up to several weeks, and long-term disability, meant for extended periods. Disability insurance typically pays a percentage of your salary during the period you are unable to work. Some employers pay the premiums for a certain level of disability, and some may offer employees the opportunity to purchase voluntary disability insurance or additional coverage.

Long-term care insurance: Long-term care insurance helps cover the costs of long-term care services. The median rate of an assisted living facility is $5,350/month, and a private nursing home room is even higher at $9,733/month. Having long-term care insurance can help cover the expenses if age or illness results in the need for long-term care.

Retirement Accounts

The 401(k) is the most common type of employer-sponsored retirement plan; similar plans are offered to non-profit employees (403(b) plans) and to government employees (457 plans). All these plans work the same way, the main feature being that they allow the employee to save for retirement in a tax-advantaged account. Money saved in a retirement plan is generally not available for withdrawal until the employee reaches age 59 ½, except in cases of hardship withdrawals or at the expense of a significant tax penalty. Some plans allow employees to take out loans from their retirement accounts. The tax advantages of employer-sponsored retirement plans, combined with the ability to build a diversified investment portfolio at a relatively low cost, make these plans a very attractive savings option for most people.

Traditional 401(k): In a traditional 401(k), you contribute pre-tax dollars and can save and invest with taxes deferred. Withdrawals are subject to income tax, and you must begin taking Required Minimum Distributions (RMDs) when you reach age 73.

Roth 401(k): In a Roth 401(k), contributions are made after taxes, but in addition to savings and investments growing tax-deferred, all qualified withdrawals are tax-free. If your plan offers a Roth option, you can divide your contributions between the traditional plan and your Roth account.

Making contributions: Employees can contribute up to $23,000 annually to a 401(k), 403(b), or 457 account. In 2024, the maximum contribution includes both traditional and Roth accounts combined. Employees over the age of 50 can make catch-up contributions of up to an additional $7,500.

Employer contributions: Some employers may offer to contribute to employee retirement accounts. This may be in the form of discretionary profit-sharing contributions, or as matching contributions, in which the employer matches some portion of employee contributions.

Mega Backdoor Roth Conversion: The name is a bit showy, but this can be a powerful benefit when offered. Some plans allow employees to make additional after-tax contributions to their 401(k), up to the IRS maximum limit of $69,000 total for 2024 ($76,500 including the catch-up contribution for those age 50 and over). The Mega Backdoor Roth allows employees to then roll those contributions over into a Roth account. By converting those contributions to a Roth account, they can then grow tax-free. Executing this benefit can be a complicated tax planning process, which could result in unexpected tax bills if done incorrectly. We recommend consulting with your financial advisor or tax professional before exercising this option.

Non-Qualified Deferred Compensation (NQDC) Plans: Some employers offer executives and key employees the opportunity to defer compensation in order to defer and potentially reduce taxes on that income. Different plans have different rules and structures, but generally employees choose to defer payment on compensation owed and can take distributions at a later date. This reduces their current taxable income. Deferred compensation plans are not subject to the IRS limitations placed on qualified plans such as 401(k)s, which means they have a nearly unlimited potential for tax-advantaged saving.

Other Benefits and Employee Discounts

Read your employee handbook carefully, because companies often offer a wide array of additional benefits and savings on outside services through negotiated rates or discounts. Some employers offer stipends or benefits to help cover items like these and more:

• Travel
• Electronics
• Athletic facilities or wellness expenses
• Moving expenses
• Adoption assistance
• Tuition reduction
• Home office allowance
• Memberships and subscriptions

You may also find that your company has negotiated savings and discounts on outside services such as mobile phone services, airlines, banking, and entertainment.

To make the most of your employee benefits and maximize your savings, reach out to a Coldstream wealth manager for additional guidance.