How to Get the Most out of Your 401K and More

Early Career, Family Finances How to Get the Most out of Your Benefits Plan

Open enrollment season is here!  

We’re expecting to receive a big packet from human resources with all the options and benefits that our employers’ offer. While I won’t say that this is an exciting thing, we are eager to go over our benefits because we’re aware of how much this can affect our retirementEmployers typically give a couple of weeks for employees to decide if they want to make changes to their plans.   

We actually made a huge change with our health insurance a few years ago that’s so far been a big boost. Not only are we paying less in premiums, but we’re building up some serious savings for retirement and lowering our taxable income now!  

How to Get the Most out of Your Benefits Plan 

The key for us was setting aside some dedicated time to go over each of the benefits offered and running the numbers ourselves. It amazed us of how much we could either save right now or stashed away later based on what we signed up for. It is a bit of an investment of your time, but if you set aside a day to knock this out, you’ll not only be saving money now, you can give yourself a huge leg up with your retirement later! 

Let me show you how you can get the most out of your benefits plan by going over two key areas that affect families the most – your health insurance and 401(k) plans.  

Keeping Your Health Insurance Affordable 

One of the biggest expenses families face is healthcare. Right now the average premium for family plans is over $1,100 a monthEven if you are relatively healthy, those monthly premiums for your health insurance plan is probably a huge chunk out of your paycheck.  

We’ve seen this happen with our own paychecks. When it was just the two of us, the premiums were doable, but after having kids, it felt like every year it kept climbing. It would be one thing if we used our insurance regularly, but for several years, it’s been pretty much only well visits. While we’re certainly grateful for that, it’s honestly a bit frustrating to see such a large amount withdrawn for something we hardly used.  

When our monthly premiums for a basic family plan were going to go up to pretty much our monthly mortgage payment a couple of years ago, we knew it was time to switch.  

How High Deductible Plans and Health Savings Accounts Work

My husband’s company offered a high deductible plan with an HSA and after running the numbers we made the switch.  With our old PPO plan, we had a lower deductible, but that meant our monthly premiums were high. 

The high deductible plan is the opposite. You pay less in premiums, but you’re on the hook with a higher deductible. A high deductible plan can make sense for families who typically don’t have a lot of visits to the doctors and little to no prescriptions. Here’s where you can save money now and for retirement with a high deductible plan. 

With this type of plan, you can open up a health savings account (HSA).  This account can be a huge win tax time now and when you retire. How? When you contribute towards your HSA, that lowers your taxable income now. That money grows tax-free and when you withdraw, it’s tax-free as well!  

Your contributions roll over and can continue to grow year after year. So if you’re healthy and don’t have to use it, it’s a really helpful account for your health-related expenses during retirement. If your family does have regular medical expenses or prescriptions, then you may want to look at getting your standard plan and having a flexible spending account.  

You can set aside pre-tax dollars for your medical bills. The key thing to remember is that you need to use your account every year because if you don’t you lose the money you allocated for it.  So review what you’ve been paying for your medicine, glasses, and other medically related items to get an idea of what you want to save up for.  

Whatever option you choose, please make sure you understand the out of pocket expenses for your family.  

How to Make Sure Your 401(k) is Working as Hard as You Do 

Alright so we covered the big expense of health insurance, let’s look at the other area you need to nail with your benefits – your 401(k). If you’re like most American families your 401(k) is the main account you use to save for your retirementThis qualified retirement account gives you the ability to invest in a tax-advantaged basis.  

With a traditional 401(k), you put your money pre-tax, which means you’re lowering your taxable income now while saving for later. If your company offers a Roth 401(k), your contribution is coming out with after-tax dollars the benefit would be when it’s time to withdraw down the line when it’s tax-free.  

Now what can sweeten the deal (even more) with your 401(k) is if your employer offers a match. If you put in a certain percentage of your income, they will contribute something as well. This is a huge win and consider it more than free money – it’s part of your compensation package (it’s yours to claim!). 

The sooner you start with your 401(k) contributions, the more you can take advantage of that match and compound interest.  

Keep Your 401(k) Fees in Check 

Since your objective is to maximize growth within your risk tolerance, you want to stay on top of your 401(k). Focus on making sure you minimize needless fees and look for investments that match your specific goals and risk tolerance.  

Going with a target-date fund or an index fund can give you the diversified portfolio you need and still keep it manageable.   

By creating an investment plan, automating your contributions, and simply checking in from time to time to make sure things are with your tolerance, you’ll be ahead of most people. 

Your Take on Maximizing Your Benefits 

I hope these tips make it easier to figure out what the best options are for you with your benefits. With your health insurance and 401(k) squared away, you’re in a much stronger position for retirement!  

If you have any questions, please leave them in the comments below.  

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