Key points: 

• Understand the difference between 401k, Roth, and IRA 
• Choose the health insurance plan that is right for you 
• Inquire about financial wellness benefits like Earned Wage Access (EWA) 

Be honest: Do you completely understand your employer’s benefits package? 

No worries, most people don’t. But learning the ins and outs of health insurance, retirement plans, and payroll perks can help improve your finances. 

We’ll take you through the basic nuances of some of the most commonly-offered employee benefits so you can focus on building your career.

Understand What Your Employer is Offering

Reading the fine print and understanding your benefits package can be tedious and time-consuming. Most people glaze over this information. Try not to be one of those people.

Actively engage with your HR department as they explain these benefits, or you could leave a lot of money on the table. Meet with your HR manager either when you start a new job or later, and ask questionsYour Human Resources manager is a resource at your disposal– use them. 

Access Your Pay Before Payday 

In the age of digital banking, more and more employers are offering Earned Wage Access (EWA). With EWA, you can access the wages you’ve already earned but not paid. This benefit can be a huge help if an unexpected bill pops up or you run into an emergency that leaves you on shaky financial grounds until the next pay cycle. EWA helps you avoid late payment penalties or having to take predatory loans to overcome a financial crisis. A great financial wellness benefit should also include other perks, like free financial counseling and access to budgeting tools. 

Explore Your Retirement Plan Options—and Get a Full Match

Your employer may offer you a retirement account which is a great perk.  Here’s how some of the most common retirement accounts work.

401(k)s and Employer Matches

Traditionally, employers offer 401(k) options to full-time employees, though starting in 2024, employers who offer 401(k)s will need to start offering them to many part-time employees thanks to the SECURE Act. 

Your employer might provide you with a match if you’re a full-time employee. Make sure you’re contributing at least the same amount as the employer match offer to maximize your benefits. 

Let’s say your employer offers a match up to 3%, so you contribute 3% of your pay to your 401(k). Your employer will then contribute approximately 3% of your income to your 401(k), doubling your money to a cumulative 6%. However, if you only contribute 1% of your pay, your employer will only match 1%. 

Employers are not e required to offer matching benefits to part-time employees, even under the SECURE Act.

IRA Payroll Deductions

Some employers might not offer a 401(k), but they might provide you with an Individual Retirement Account (IRA). You’ll fund this account independently, but your employer may automatically take your contributions as payroll deductions. 

Roth vs. Traditional Retirement Accounts

The most common employer-sponsored retirement account is a traditional 401(k). But your employer may also offer options like a Roth 401(k), a traditional IRA, or a Roth IRA. 

The difference between a traditional and Roth retirement account is tax timing. With traditional accounts, you get a tax break today as your contributions lower your income on your tax return, but you will pay taxes on the withdrawals in retirement. 

Roth accounts are just the opposite. You don’t get tax deductions, but the money grows tax-free. When you make withdrawals in retirement, you won’t owe any money to Uncle Sam. 

TIP: If you don’t want to lock your money away until retirement because your finances are tight today, consider a Roth IRA. In many instances, you can withdraw your recent contributions without penalties (though there will be penalties if you withdraw any interest). If your car breaks down or your landlord hikes the rent, you can access that cash in an emergency.

Utilize Preventative Health Benefits

Most employers will only offer you one health insurance option. Unless it costs you more than 9.12% of your income, you should take it. 

Take time to understand your benefits and become familiar with them. Even if you think you’re perfectly healthy, consider preventative healthcare benefits. Utilizing these benefits can help you identify health issues when they’re easy to treat.

Invest in Your HSA for Your Golden Years

Your employer may also offer you a Health Savings Account (HSA) and a health insurance policy. You can use the money you save in an HSA for healthcare expenses without incurring a penalty, and you can use it now or when you retire.

Unlike a Flexible Savings Account (FSA), the money in your HSA never expires. When the new year rolls around, you won’t lose any money you haven’t spent. You can keep your savings in there as long as you’d like, even after you’ve left your employer.

Take Advantage of Life and Disability Insurance

Your employer may offer you any number of insurance policies, and you should research and explore them. The two most common types outside of health insurance are life and disability insurance. 

Life Insurance

It’s a good idea for everyone to have a life insurance policy, even if it’s independent of their employer. But one major perk of employer-sponsored life insurance is that it’s usually available simply because you’re an employee, meaning you won’t have to undergo a medical exam to qualify. Employers pay a significant portion or all the premiums for these life insurance policies. Sometimes you can also opt to add your spouse or children.

One thing you want to be sure of with employer-sponsored life insurance is that you understand who is listed as the beneficiary. A beneficiary is a person who receives the life insurance payout after you pass away. You want your spouse or other trusted friend or family member to be the beneficiary—not your employer. 

Disability Insurance

Accepting your employer’s disability insurance policy can be a good hedge against the risk of becoming disabled and unable to work.

Short-term disability policies tend to be for injuries and extended illnesses that are expected to resolve within a year or, in some cases, two years. Employees can also use short-term disability policies to provide paid maternity leave if the employer does not offer that.

TIP: Some states have disability insurance programs. If you live in one of these states, you and your employer may be required to contribute to the state insurance fund every paycheck. You’ll want to check for any redundancies in the short-term disability plan offered by your employer because, with the state plan in place, you might not need a private policy.

Depending on the plan, long-term disability insurance can be a bit of a misnomer. While some plans stretch through retirement, others only cover you for five or ten years. It’s an important policy to consider with a complete understanding of what ‘long-term’ implies according to the fine print.

Ask About EAPs

Employee Assistance Programs, or EAPs, can cover many benefits and may vary depending on your occupation. Some EAP programs provide access to mental health services, legal and financial advice, and adoption services. 

Bottom Line

This list is by no means all-inclusive. Your company may offer additional benefits, but you’ll never know if you don’t ask.

Understanding your benefits package might feel like tedious work, but making an effort and reaching out to your HR representative can help you reach your financial goals regardless of your hourly pay.

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All content provided on Payactiv.com/blog/ is for informational purposes only. Payactiv makes no representations of the accuracy or completeness of any information on this site or found by following any link from this site. Payactiv will not be liable for any errors or omissions in this information nor for the availability of this information. Payactiv will not be liable for any losses, injuries, or damages from the display or use of this information.