This week we welcome Sophia Bera, a certified financial planner who caters to millennials — though this particular post, about how to maximize your company’s benefits, is a good reminder to us all. Whether you’re just starting a job or you’ve been with the same company for years and haven’t re-looked your benefits in a while, the below advice will help you make the most of what your company is offering.
Do you remember what company benefits you signed up for when you were first hired? Did you make any changes during open enrollment this past year? When it comes to working for a company, the salary offered isn’t the only aspect of the job to take into consideration. Unfortunately, many people only skim through or completely overlook their company benefits package – and this can be a big financial mistake. Many of these benefits come out of your paycheck pre-tax which helps you lower your tax bill and save you thousands of dollars in the long run!
You might be leaving a lot on the table if you fail to comb through your benefits and take advantage of what you company is offering its employees. It’s more than just an employer match in a retirement account (although that is a big benefit you need to be sure to grab). Here’s where to start and what to look for:
Request Your Company Benefits Package
If you work for a company with an HR department, you might want to start there. The department (or whoever is in charge of staffing concerns, if you work for a small business) should be able to provide you with some sort of handbook or paperwork that details what you are entitled to as an employee.
It can be really overwhelming to dive into pages and pages of technical writing on your benefits, but understanding the perks that come with your job is important! By utilizing what you can, you could save thousands of dollars in expenses throughout the year.
Common Company Benefits
Before you start feeling too bogged down in all the paperwork that explains your benefits, take a look through this list so you’ll know what to be on the lookout for:
- Retirement Benefits. The biggest benefit you need to be taking advantage of is any kind of retirement account your employer offers, such as 401(k)s, 403(b)s, or a SIMPLE IRA. Sign up for the retirement plan your company offers and make sure you contribute enough to meet the match if there is one. This is free money! If your employer offers to match your contributions up to 5%, you need to contribute at least 5% of your salary to get the full benefit.
- All Kinds of Insurance. It’s widely known that the majority of companies offer some sort of health insurance coverage to their employees. But they also offer other types of insurance that you need to take advantage of to make sure you and your family will be protected in the event of a disaster or emergency. Your company benefits could include life insurance, disability insurance (both short term and long term), a health savings account, and flex spending accounts (one for health care and one for childcare costs).
- Financial Perks in Addition to Your Normal Salary. In addition to your regular paycheck, your company benefits might include things like stock options in the form of a employee stock purchase plan (or ESPP). This allows you to buy company stock at a discounted price. You might also be entitled to reimbursements on your wardrobe, commuting expenses, or other costs that you incur that are a direct result of working for your employer. This will all depend on the company you work for, so be sure to look into this and ask questions!
Finally, don’t forget about vacation time. On the surface, this might not seem like a financial perk. But remember, when you take vacation days you’re getting paid for hours that you’re not actually working. Be sure to make the most of your paid time off.
Your company benefits package can be a lot to look through, but it’s crucial you take the time to do so. If you’re want to learn more about benefits, you can take a more in-depth look at my post on my website, Gen Y Planning, on how maximizing your company benefits could save you thousands of dollars!
About Sophia: Sophia Bera, CFP® is the Founder of Gen Y Planning and is a financial planner for Millennials. She’s passionate about helping people in their 20s and 30s across the country with their money. She is a contributor for AOL’s Daily Finance website and has been quoted on various websites and publications including Forbes, Business Insider, Yahoo, Money Magazine, InvestmentNews, Financial Advisor magazine, and The Huffington Post. She was named one of the “Top Financial Advisors for Millennials” by the website www.MoneyUnder30.com. Follow her on Twitter @sophiabera or sign up for the Gen Y Planning Newsletter to stay up to date on financial articles geared towards Millennials.
I’m excited to have John Schmoll as today’s guest poster. I met him when I spoke at FINCON — a financial bloggers conference — last year, and have enjoyed reading his blog Frugal Rules since. Today, he’s sharing his tips for saving for retirement when you’re self employed.
I have learned a lot about myself in the 18 months or so that I’ve been self-employed. I’ve learned about what truly motivates me, what I do in the face of a challenge, and how easy it can be to let things slide by.
One particular area that I’ve been guilty of letting slide by over the past year is actively saving for retirement. Gone is the 401k and the ability of getting that nice employer match – it all rests on my wife and I now. I’ve learned that even with the ups and downs of self-employment it is possible to have balance and put away money for retirement, though it takes action on your part.
Months Turn in to Years
If you run your own business, you know better than most that time is precious and there never seems to be enough of it in a day. As a result, time passes and things get delayed as you implement an “I’ll take care of it tomorrow” mindset.
The problem with this mindset, as it relates to retirement investing, is those days turn into months and thus you lose that precious time needed to grow your portfolio. This temptation to delay happens to the best of us and the best thing you can do is take the bull by the horns and actively engage with your retirement investing now.
Know Your Options
Many employers offer a solid framework you can use to save for retirement in a 401k. Often, entrepreneurs allow this lack of framework to hold them back from saving for retirement. If you’re self-employed, there are many retirement saving options you can use to create your own framework:
- SEP IRAs
- SIMPLE IRAs
- Solo 401ks
Most brokerages offer all of these options, but make sure you find the one that works best for you and has either no fees or low fees so you can have more of your money working for you.
One nice added feature is that you can invest in virtually anything in these retirement accounts vs. restrictions you might face in an employer-sponsored 401k. Thus, you have access to lower-fee index funds as opposed to being forced to choose between several higher-fee funds – which means more of your money can work for you.
Look at Your Priorities
The problem many face in their self-employment journey is fluctuating income. You could have a stellar month followed by one that is barely enough to get by. When dealing with this fluctuating income there are a number of things to look at:
- What are you spending money on each month that can be cut?
- What is your rolling average of income over a longer period of time?
- Are you sitting on too much cash?
Taking a serious look at some of these things can not only reveal what your priorities are, but it can also show you that you do have money you could set aside each month or quarter for retirement. Of course you still want to be able to live life, but you don’t want to do it at the expense of sacrificing your future for the present.
Saving for retirement while running your own business does present some unique challenges, but it’s not impossible. Making it a priority and knowing your options will set you up to succeed in the long run.
About John: John Schmoll is the founder of Frugal Rules, a blog created to help people experience financial freedom through frugality. John is passionate about budgeting, saving and investing and enjoys sharing his knowledge and experience with others so they can avoid making some of the mistakes that he made. A veteran of the financial services industry, John has an MBA in Finance and experience as a licensed stockbroker. You can find John online at frugalrules.com and follow him on Twitter at @frugalrules.
The Texas Daily caught up with Jean last week when she was in Dallas for the 2014 CSCUF FOCUS Summit.
Do you have appointments for individual consultations for financial planning? I live at the Jersey Shore and will travel anywhere to get the financial help I need. I am 59, a teacher and divorced with a low credit score and significant debt from a high mortgage and poor choice of loans. Facing major decisions, and I need help!!
I don’t, Sue. But you’re an excellent candidate for Money School. Specifically, you should take The Debt Diet, which is designed to help you do two of the very things you mentioned you’re struggling with: pay off debt, and increase your credit score. By the end of the class, you’ll also be prepared to start building an emergency fund, which can help keep you from falling into debt again the next time money gets tight.
A new schedule of classes can be found here — this semester’s live schedule starts on February 11. I teach these live classes via webinar, and they come with a live Q&A period at the end, as well as a week of chat-based Office Hours, so you can ask me all of your questions and come back for more info if you realize something from the lessons wasn’t clear. It looks like this:
This year, I’m also offering recorded versions of the same classes — including The Debt Diet — through an online education platform called Udemy. This is a great solution if our live course schedule doesn’t mesh with your own schedule.
And as debt is usually tied to other areas of your financial life that aren’t working, you may want to take some of the others (particularlyBudgeting Bootcamp, A Crash Course in Saving More and Spending Less, and Yes, You Can Retire) as well.
I hope that is helpful — and I hope to see you in class! If you decide to attend, I look forward to hearing what you think.
Are you using your 401(k) to its full potential? Probably not, according to the research. That’s why Matt and I talked all things 401(k)-related this morning on Today, and even answered some of your questions live. You can see the full segment below.
P.S. I had a great time answering your Twitter questions this morning — thank you to those who participated, and keep them coming!
*Not seeing the video? Some browsers block videos on secure websites like ours. In your address bar, remove the “s” after http at the start of the web address, then reload the page. The video should appear. If you still have issues, contact us.
I’m 48 years old. How can I find someone who can look at my finances and come up with a retirement plan without being my investment planner? Also, where can I check to make sure they are in good standing and properly licensed?
There are financial advisors who charge by the plan and even by the hour, and it sounds like that is what you want: Someone to set you up, but not hold your hand. I’m going to recommend two resources: The first is the Garrett Planning Network, which is a group of fee-only independent financial advisors. That means they charge a set fee, not a commission or a percentage of assets under management. Garrett Planning Network advisors will also work on an hourly basis, meaning you can contact a network planner for one or two hours of guidance instead of comprehensive planning services. This may be a good fit for you.
You can also do a search on NAPFA.org, another great association for quality fee-only advisors. Advisors found through both sites will have the proper certification, but during your first meeting, you can ask for the advisor’s ADV Form, Part II from the Security and Exchange Commission. It will tell you how the advisor is compensated and list any conflicts of interest – including whether they are earning a commission for recommending certain investments. You should also ask for references – and call them. And if you have friends or coworkers who work with an advisor, you might ask around for recommendations. Coworkers in particularly can be helpful here, because they’re likely to have similar financial situations to your own, including the same 401(k) plan and other benefits.
Finally, I heavily weigh whether I feel comfortable with that advisor. Open, honest communication is important in this relationship, and if you can’t bring everything to the table — the good, the bad and the ugly — you’re not going to get your money’s worth.
Today’s the day to enjoy your chocolate cake, your one (or three) glasses of Merlot and any other vices you need to get out of your system. Tonight marks the start of the New Year. And, tomorrow is the day you embrace those New Year’s Resolutions.
For many of you, that means a money makeover. In Fidelity Investments’ fifth annual New Year Financial Resolutions Study, over half (54%) of Americans are looking to spruce up their money habits in 2014.
Topping the list of financial resolutions: saving more, paying off debt and spending less.
What’s changed since years past? In 2014 more people (up 10%) plan to prioritize their savings for short-term goals, like emergency funds, opposed to long-term goals, like retirement. That’s not necessarily a bad thing. According to Ken Hevert, vice president of retirement products at Fidelity, this shift in focus suggests Americans are becoming more balanced with their savings plans. And even with the drop, saving for retirement still remains the top savings goal.
For those of you who have committed to saving more in 2014, especially for retirement, here are a few tried and true (yes, you’ve heard them before but they work!) ways to accomplish your money resolutions in 2014:
Get on board an employer-sponsored plan: “If you have access to an employer-sponsored plan – a 401(k) or 403(b) – and you’ve got the opportunity to get an employer match, you want to absolutely participate in that program at a minimum, up to the point you get that maximum,” Hevert said. Self-employed? No problem. IRAs, or solo 401(k)s, are cost-effective and easy-to-use ways for saving as much as possible for retirement.
Go on autopilot: “Individuals who are on an automatic savings plan are much more likely to stick with their savings as either: A) They’re faced with personal financial challenges, or B) The market becomes volatile,” Hevert said. “We’ve seen, year after year, people who are on an auto contribution plan – either to a 401(k) or IRA – those are the ones who continue to stick to it.” The same suggestion can apply for your regular savings accounts, too.
Assess your assets: One suggestion that doesn’t require you to write a check or set-up an automatic contribution plan is simply reviewing your assets. “A lot of people kind of underestimate the importance of this step, which is to really take a look at how your overall long-term retirement savings are allocated,” he said. “By simply revisiting your asset allocation and making sure you’ve got the right mix of equities, bonds and cash, it can make a meaningful difference over time.”
Save together: In the current survey, 44% of respondents said they generally make their financial resolutions alone, whereas 29% said they make them with their spouses or significant others. If you have a partner, the latter might be the better approach. In earlier research, Fidelity found that the biggest piece of advice long-time couples had for other couples was to make all financial plans together. When you share financial responsibilities (and goals) you keep each other on track. That makes achieving your goals all the more likely. “We’ve seen when people plan as a household and plan as couples the likelihood of achieving their objectives is much more favorable,” Hevert said. Living the single life? Sharing goals with your family and friends works, too.
Happy New Year!
That would be nice, but unfortunately that’s not how this works. You can’t convert just the contributions and not the earnings. All IRA money is considered one cup of money: Contributions and earnings are not kept separate, so you can’t convert one without the other.
You can, however, convert only a portion of your account, but you’ll still be taxed on the percentage that is considered earnings. One smart way to handle this is to convert only an amount on which you can afford to pay taxes. You want to be able to foot the tax bill out of money you have set aside that isn’t in retirement accounts, not from the proceeds of the conversion (otherwise, you’ll not only be pulling money away from retirement, but if you’re under age 59 1/2, you may penalized 10% for taking an early distribution). If you work with a tax advisor, he or she may also be able to help you settle on an amount to convert that will still allow you to keep your income within your current tax bracket. An advisor may suggest converting in small amounts over a few years, for example.
The benefit of a Roth IRA conversion comes if you think your tax rate will be higher in retirement than it is now — either because you expect taxes overall to increase or you think your individual tax rate will go up. Money in a Roth IRA grows tax free. It also isn’t subject to required minimum distributions, which means you can leave your money in a Roth indefinitely and use it as a tool to pass that money on to your heirs.
Yesterday I joined JJ Ramberg on MSNBC’s “Your Business” to talk about how small businesses should approach retirement planning. You can catch up on our conversation below:
Bill, your wife should definitely contribute to something. If you don’t get matching dollars from an employer sponsored 401(k), you have to compare other factors. How much can you afford to contribute a year? In a 401(k), you’re allowed to contribute $17,500 a year, plus another $5,500 if you’re 50 or older. An IRA – whether Roth or Traditional – caps your contributions at $5,500, or $6,500 over age 50. (These numbers are for 2013, but the IRS has announced that in 2014, contribution limits will remain the same).
Then you consider the plan itself. What do you think of the investment options and expenses associated with your 401(k)? IRAs tend to have a wider variety of investments. Do you want the ability to pull out money tax free in retirement? You might consider a Roth.
After you’ve weighed all of these options, you can contribute to a combination of plans. Maybe you start by maxing out a Roth IRA, if you’re eligible — in 2014, that means you have an adjusted gross income of less than $191,000 if you and your wife file jointly. Single filers will need to have an AGI of less than $129,000. (Note, however, that contribution limits start to decline if your AGI is over $181,000 for couples filing jointly and $114,000 for singles). If you’re not eligible for that Roth, you can contribute to a traditional IRA if you like the investment options and fees there better. Once you’ve maxed out your IRA contributions, you can move back to the 401(k) and contribute there, since the limits are higher.
For those lucky readers who do earn 401(k) matching dollars from an employer, you would reverse the system — contribute at least enough to the 401(k) to grab those, since it is literally free money. Then if you’d like you can look at maxing out a Roth or traditional IRA.
Finally, I want to leave you with my general rule of thumb for how you should prioritize your savings. My hierarchy of savings needs looks like this:
- Emergency fund, with at least three to six months of expenses in cash reserves
- Matched contributions, like those to a 401(k) as we discussed above
- Tax-advantaged accounts, such as a Roth or traditional IRA and some 529 accounts (used for college savings)
- Discretionary accounts, which aren’t tax-advantaged but allow you to invest for the future