“My new company gave me this big packet of benefits information. Should I sign up for the …”
- Health Insurance?
- Company 401K?
- Group Life Insurance?
- Long Term Disability Insurance?
- Long Term Care Insurance?
- Transit Checks?
- Flexible Spending or Dependent Care Spending Account (FSA or DCSA)?
- Employee Stock Purchase Plan (ESPP)?
- Deferred Compensation Plan?
These are questions I hear a lot, and the short answer to all of them is YES. Let me explain why:
Economies of Scale. It is far less expensive to buy any kind of insurance through a group rather than on your own. Most already know this when it comes to health insurance, but the same applies for life, disability and long term care.
When it comes to investments, most (but not all) company 401(k) plans have the benefit of institutional pricing. That means you’ll have no investment minimums and generally pay less in fees and commissions than you would if you opened an Individual Retirement Account (IRA) on your own.
Convenience. It is darn convenient to have a little taken out of every paycheck. If you have to research your options and set up insurance or savings on your own, will you actually do it? For many, the answer in no.
Tax Benefits You Can Not Get Elsewhere. Certain benefits are just not available to individuals. You can’t save in a Flexible Spending Account (FSA) outside of a Cafeteria benefits plan; it doesn’t exist. Same for things like Transit Checks, Employee Stock Purchase Plans (of course) or Deferred Compensation Plans.
You can also save more in a business retirement plan than you can on your own. The maximum annual IRA contribution is $5000 ($6000 if you are over 50), which is not enough for many. In a 401(k), the maximum is $16,5000 ($21,500 if over 50).
No Income Limits. You may know that IRA contributions are not tax deductible if your income is above certain levels, and Roth IRA contributions are not allowed. Not so with your 401(k).
This applies to Dependent Care Savings Accounts as well. You may lose the child care tax deduction above a certain income, but you can still get the benefit of using pretax dollars to pay for up to $5000 in childcare spending with a DCSA.
Motivation. Consider why your company is offering these benefits in the first place. Sure, the company may get some kind of tax benefit, but that is not the only reason. It’s highly likely that benefits are being offered because the owners or top executives want them. (And if you are the owner, company benefits are probably something you should think about.)
So, do yourself a favor and consider every option at your next opportunity, which may be when you start a new job or open enrollment period (usually in November). They are called “benefits” for a reason.
Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.
