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Throughout the year I am often asked by clients if I could explain some workplace benefit to them. Companies offer many different benefits to employees at different levels however there are some benefits that are offered to all.
If your employer has a retirement plan that you contribute to, such as a 401(k) or 403(b) plan, the odds are very good that the company will entice you to participate by offering to "match" up to a certain limit. Two areas that you need to understand are:
-- The amount that the employer contributes is subject to vesting and you do not always own it immediately.
-- Matching schedules vary and in order for you to obtain the maximum match then you need to follow the schedule.
Sometimes the match is based on your salary per pay period and you will get a match only when you contribute. Other times it is based on your annual salary. Assume that you earn $100K per year and get a bonus in January of $5,000 and decide to defer that amount as your only contribution to the 401(k). Your company matches 5% of your salary up to $5,000. If they do not care about the frequency then you may get the $5,000 match. If their plan calls for matching based on per pay period contributions then you will fall far short.
Another area in which I am asked questions is the type of health coverage that a person should have. Many companies offer a choice of plans and they differ on co-payments, deductibles and network coverage. You need to understand that "what is best for me" really is dependent on your situation. You can save money by taking on more cost sharing via a higher co-pay or deductible but you do want to make certain that your doctors are in your plan. I advise people who have known health issues to perhaps skip the cheapest coverage if it limits access to health care providers that they may need.
"Flexible Spending Accounts" are another benefit that people ask questions about. In a nutshell the FSA permits you to set aside pre-tax money to be used for medical expenses. If you do not use all the money that you set aside then you lose the balance. Since most people are unable to deduct medical expenses on their tax returns this provides an excellent way to reduce your taxes. I do not recall one instance where I advised a client to skip participation.
Employees can also avail themselves of dependent care accounts where they can deduct pretax money to pay expenses incurred in the care of a child under 13 while the parent is at work. Is it better to contribute to the account or claim the Dependent Care Credit on your tax return? The answer, like so many others, depends on your unique situation. Having the money come out pre-tax does reduce your AGI which may form the basis for other qualifying events such as the threshold for the 7-1/2% medical deductions and 2% threshold for miscellaneous deductions. The credit tops out at 20% of expenses or a maximum of$600 for one dependent if the AGI is $43,000 or more. Clearly if you are in a 25% bracket you are better off with the spending account. In addition the spending account may provide a benefit on your state return.
"My company is offering me something called AD&D, should I sign up?" is a question heard. AD&D is Accidental Death and Dismemberment Insurance that pays additional benefits if you die in an accident or lose a limb. I often advise against this because it gives people a false sense of coverage. Too often people fail to realize that the coverage is very specific and they forgo traditional more comprehensive coverage which is affordable. You could be in a horrific car accident and survive for 8 months and then die of complications and this coverage may not pay anything at all and yet people have thought they were protected.
You should always read your benefit booklets carefully and contact your HR department for clarification.