From Maine to California, palpable signs of anxiety and panic rule at the water coolers in offices near and far, large and small, corporate and laid-back. And yes, it does involve a certain election — though it’s definitely not what you might think.
Open enrollment season is upon us. And with many employer plans about to close, inevitable questions arise as to how a worker bee can best turn the sweet smell of a full-time job into honey for the retirement hive. Enter the decision-making process — and accompanying discernment — which often proves to be about as much fun as ducking bug spray.
So what can you do as a conscientious employee, and steward of your finances, to get your investments and financial priorities in order?
[See: 8 Ways to Profit From Donald Trump’s Infrastructure Plans.]
Whether it’s about making sound investment choices, or freeing up money to take straight to the Nasdaq and New York Stock Exchange, here are seven tips for turning your open enrollment elections into a landslide success.
Get in on your organization’s match. If you’re looking for a powerful way to expand on your income and save for retirement, the fuel injection of an employee match marks a great start.
Typically a company might match, dollar for dollar, up to 6 percent of your salary you put into your retirement account.
“A very common truism of financial planning is that workers should take advantage of employer matches in 401(k)s, but often do not,” says Scott Mann, president of the Mann Financial Group in Houston. “In failing to contribute, individuals are leaving money on the table.”
Take advantage of tax-deferred investments. More free money, anyone? Tax-deferred investments through 401(k) plans build wealth free of the tax burden that would otherwise impact the entire nest egg.
Here, the magic of compound interest comes into play, says Keith Baker, program coordinator for mortgage banking and financial services at North Lake College in Irving, Texas.
Otherwise, “Here’s a scary fact: the average person at age 65 and up has only $41,000 on average in a 401(k) or thrift savings plan.”
Check into the employee stock purchase plan. Also known as an ESPP, this vehicle allows you to purchase stock in your company at a discount, commonly 15 percent or more.
Open enrollment is an ideal time to get in on the action, and in some cases pre-tax dollars can be used — meaning that you’ll spend even less to get more.
To quote the old saw, “past performance may not be indicative of future results.” But at least stock bought a tremendous discount allows you to turn around and sell at a net profit — even if share prices dip slightly.
Look at a health savings account. HSAs can offer a decided edge in an age of skyrocketing health care costs — especially since 77 percent are saving less for retirement as a result, according to a new Bank of America Merrill Lynch Plan Wellness Scorecard.
[Read: 4 Things to Know About Self-Directed IRAs.]
If you’re in a high-deductible health plan, the HSA offers you a tax-advantaged medical savings account that’s available to U.S. taxpayers.
“Often, people don’t invest in HSAs because they don’t realize how important they are in making HDHP plans truly affordable,” says Kim Buckey, vice president of client services at DirectPath, a strategic health care engagement and compliance company.
Leverage all the tax savings you can. Tax-free flexible spending accounts can accommodate up to $2,500 per year for approved medical expenses.
An additional FSA for child and dependent care expenses allows you to put in $5,000.
Commuter tax benefits? Currently, they’re at $255 per month for parking, transit and commuter highway vehicles.
And the aforementioned HSA actually offers a triple tax advantage.
“You can not only save pre-tax and earn tax free, you can spend tax free as a withdrawal, so long as you spend it on health care,” says Gerard J. Wedig, associate professor of business administration at the University of Rochester’s Simon Business School. “That’s the super-strong benefit.”
Be sure to check, though, if you’ll lose out on a company match if you pick the HSA instead of a traditional retirement account. Also, health care FSAs have a “use it or lose it” threshold where just $500 maximum can be rolled over into the next benefit year.
Take advantage of outside resources. If your company provides the tools to get input from outside the office that’s a very valuable asset, says Marcos Cordero, CEO and co-Founder of Miami-based Gradvisor, a company that specializes in college savings solutions for employees.
“The truly great employee benefits are ones that also offer outside financial advice,” Cordero says. “These people are experts on all the options and can help make things clearer for employees.”
He cites 529 plans as an example.
“There are hundreds of plans an employee can enroll in, each with their own benefits,” Cordero says. “Having an advisor who can walk employees through the process makes everything less stressful. It also allows employees to enroll into the right investment programs confidently.”
Jump on auto enrollment. Sadly, some employees relegate open enrollment investing to somewhere on the to-do list just below “shop Amazon when the boss isn’t looking.”
Automatic enrollment typically involves a default savings rate and investment portfolio. And according to the Bank of America Merrill Lynch report, retirement plan participation jumps to 78 percent with younger millennials and 88 percent with older millennials when auto enrollment is offered.
Overall, automatic enrollment plans can raise employee participation in 401(k)s by 50 percent, according to a U.S. Department of Labor report. True, it can reduce potential savings compared to more thought-out choices.
[Read: Inflation Is Going to Rise; Here’s How to Protect Yourself.]
“But it’s better to have default settings, and possibly a lower average savings rate, than for employees to not save at all,” says Dan Hernandez, a senior financial representative at Lincoln Investment Voorhees, New Jersey.
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How to Deal With the Stress of Open 401(k) Enrollment originally appeared on usnews.com
