You’ve just graduated and you’ve got your first full-time job lined up; congratulations! You still have a lot of decisions to make and if you are like me when I got my first full-time job, you don’t understand half of the information they are throwing at you.
From health insurance to retirement, things are different in this first full-time job benefits world. Here is everything you need to know about your first full-time job benefits so you can take advantage of everything being offered to you.
Probably up until this time you’ve been covered under your parent’s health insurance, so to step out on your own and get your own coverage through work is a big deal. But it can be confusing as every company offers different options.
Is the plan being offered a high-deductible or low deductible plan? What is a deductible anyway? These are all things I needed to understand in selecting my health insurance options.
What is a Deductible and Which is Right for you?
A deductible is a set amount of money that you will have to pay out of pocket before insurance will pay a claim. So whether you are comfortable with an insurance plan that has a high-deductible or low-deductible depends on how much you can afford to pay out of pocket and how often you anticipate needing to seek medical treatment.
Keep in mind that many insurance companies will cover preventative care 100% or close to it, so all you may have to pay is a co-pay at the time of the visit. The healthier you stay, the less you are likely to cost the insurance company in the future. Moral of the story, don’t avoid the annual checkups just because you have a high deductible.
My Company Didn’t Give Me a Choice, Only High Deductible is Available, Now What?
Check to see if the plan allows you to have either a Flexible Spending Account (FSA) or Health Savings Account (HSA). Both of these let you set aside money, pre-tax to be used to cover medical expenses. There are some differences between the FSA and HSA. Here are some highlights:
- Can contribute up to $2,550 per year
- Linked to the employer, if you leave, the employer keeps the money
- Generally a use it or lose account with a few exceptions. Meaning if you don’t use everything you set aside you forfeit the money. Choose the amount you set aside wisely.
- Can contribute up to $3,350 for individuals, $6, 750 for families
- Employees can take the money with them if they change jobs
- The money rolls over from year to year
- Once you reach a certain amount, you can invest the funds in your HSA
By setting up an FSA or HSA you are lowering your tax liability and ensuring you have money for medical emergencies.
Alternatively, you can just use it to save up, for example, I used my HSA to pay for my LASIK eye surgery. Ultimately I chose how much to contribute to my HSA based on my Deductible. If my deductible was $1,500 then I set my total contributions to my HSA to equal $1,500.
What About Vision & Dental Insurance?
If your first full-time job benefits include vision and dental than you are pretty set. The cost of these benefits is typically pretty reasonable. Besides, not having to pay anything beyond a co-pay to get your eyes and teeth checked ensure great vision and long lasting teeth.
Retirement Choices for Your First Full-Time Job
There are a lot of retirement options out there, chances are your employer will offer you a 401k retirement account. They may even give you money to put in it, find out if there is an employer match. Some companies will offer a 6% match or maybe just a 1% match or maybe no match at all. Take the time to understand your employer’s retirement program so you can squeeze out as much money as possible.
The best thing you can do for your 20 something self is to start saving for retirement now. Seriously, no excuses you will so be so glad you started saving for retirement as soon as you could. If your company does offer a match you need to be contributing enough to at least get the match, otherwise, you are throwing away free money.
What Does Company Match Mean?
Company match means that they will match whatever you contribute up to a certain amount. So for example, if your company offers a 100% match up to 5% it means they will match you, dollar for dollar if you contribute 5% of your income to your retirement account. Keep in mind that 401k contributions are typically pre-tax which means, you will owe less in taxes overall.
What Other Options for Retirement Saving Do I Have?
If your company doesn’t offer you an opportunity to save for retirement in a 401k account, you should still take advantage of the money you are making with your first full-time job. Open either an IRA (Individual Retirement Account) or a Roth IRA.
Unlike a 401k that is sponsored by your employer, an IRA and Roth IRA is sponsored by you and you alone.
- Pre-tax Contributions – Like a 401k, your contributions to your IRA are pre-tax. Meaning you are taxed as if you didn’t earn that money so you will owe less in taxes. So if you make $50,000 and put the maximum of $5,500 into an IRA, you will only be taxed as though you made $44,500. Similar to the 401k you will be taxed on your withdrawals.
- Gains aren’t taxed during contribution – The gains your contribution/investment aren’t considered taxable income. Meaning you won’t be taxed on your gains until you start withdrawing. This becomes even more useful as your total account grows over the years. The average (though it is not guaranteed) gain throughout the lifetime of the contribution is 7% each year. The first year being taxed on a 7% gain on the initial investment of $5,500 would only be $385 additional income. However, twenty years later assuming you maxed out your IRA each year your gains would be closer to $6,000 which is a good chunk more to be taxed on.
- You can have one even if you already contribute to a 401k – If you want to save more than the $18k a 401k will let you (good for you!) than you can also contribute to an IRA. Though you may not be able to deduct your contribution from your taxes. However, you will be able to take advantage of your gains not being taxed each year.
While the Roth IRA is also an individual retirement account, the Roth part comes from Senator Roth. He helped to pass the legislation that established what was originally called the IRA Plus (boy do those boys in Congress suck at naming things), which has different features than a regular IRA.
There are a lot of benefits to the Roth IRA; it is basically everything you’ve been missing with the 401k and the IRA, like penalty-free withdrawal on contributions and no mandatory withdrawal age.
- Penalty & Tax-Free – Provided you meet certain requirements you can withdraw your contribution (read not your gains) penalty and tax-free. Since your contributions are made post-taxes, you aren’t taxed on withdrawing your contribution. For your withdrawal to be penalty and tax-free, you must have established your Roth IRA a minimum of five years before making the withdrawal. You must also meet one (just one, not all) of the following criteria:
• Be 59.5 years of age
• Die and have the money go towards your beneficiary
• Attributable due to you being disabled.
• (The much happier option) Being a first time home buyer
- Tax-Free Growth – Your gains are not taxed each year. Additionally, so long as you meet the requirements above once you hit 59.5 you can start withdrawing both your contribution and your gains penalty and tax-free. So your gains basically are tax-free.
- No limit on what age can contribute – Unlike the IRA where you can no longer contribute once you hit 70.5 years of age; if you are still rocking and rolling in employment into your seventies, you can continue to contribute to your Roth IRA.
Your company may also offer some other benefits to help you out. These could range from a discount at Weight Watchers, to covering a gym membership, to helping you figure out the adoption process. They could even be discounted pet insurance or car insurance. These benefits aren’t always advertised, so make sure to spend some time on the Benefits section of your companies HR page.
Wrapping it Up with a Bow on Top
Hopefully, you now feel more informed about all the benefit information coming your way. Really the biggest tip I can give you is to not gloss over the information. Take the time to sit down and read about the benefits offered to you. You can only take full advantage of your company’s benefits if you are informed on all the benefits. You should now feel prepared to make all those first full-time job benefit decisions! Good luck at your first full-time job!