It’s that time of year again: open enrollment. The folks in HR have just sent you either the cryptic email or the packet-o-stuff that gives you all the features and benefits of your health insurance, life insurance, disability insurance, and 401k/403b plans.
Do they expect you to actually read AND understand all that stuff?
Each year we field a bunch of questions about employee benefits for the physicians we serve, so I want to share the top things we look for as we review these plans for clients.
1. Save taxes with the right health insurance. If you are expecting to have huge medical bills next year or if a member of your family faces chronic health issues, then you should stick with low deductible health insurance.
However, if you and the other people in your family are in good health, you might be better off with a high deductlble health plan (HDHP).
Having the HDHP makes you eligible for a Health Savings Account (HSA) which lets you sock away up to $6750 next year, tax-free.
That can save you two or three thousand dollars in taxes… permanently.
2. Get insurance even if you’re “sick”. Is there something about your health that makes the insurance company queasy?
if you are uninsurable, group life insurance may be the perfect fit for you since most group life plans will allow you to buy a certain amount (usually about $250,000) without medical underwriting.
While $250,000 won’t be enough for any physician family who wants to become financially secure, it might be enough to pay off a mortgage or send two kids to a public, in-state college.
And if you are healthy but it’s been a while since you looked at your coverage, you will find a better deal if you buy coverage outside your group plan, where higher underwriting standards keep the costs low.
3. Don’t miss the match. Would you believe that some of your colleagues are missing out on free money?
How? By contributing less than they should to their 401k’s.
If you’re not maxing out your 401k/403b, there should be a very good reason (like saving for an emergency or paying off debt with a super high interest rate). Everybody else should max this out.
4. Skip the Roth. Now that we’re all in a higher tax bracket, I can think of precious few situations where physicians should contribute to the Roth 401k plan at work.
Yet, there is still a great deal of confusion on this topic that, evidently, was not cover in med school.
Simply put, the Roth vs. Traditional decision is a decision to pay taxes NOW (when you’re in the top marginal bracket) or later, when you may be in a lower bracket and have more control over your tax rate.
I could go into great detail here about Roth versus Traditional but let me save you some time. If you are reading this and you have M.D. or D.O. after your name, your best bet is to go with the regular old Traditional 401k. And if I’m wrong, you can still convert your Traditional 401k to a Roth 401k and pay all those taxes later.
5. Save big taxes later by paying little taxes now. If your employer pays the premium for your group disability insurance plan, you need to know that—if you become disabled—the benefit you receive will be taxable at the state and federal levels.
Occasionally though, I see plans where an employer allows physicians to elect to have this premium payment taxed as ordinary income.
I know, I know. Paying taxes is a bad thing, but not in this case.
If that premium is $100 but the benefit is $10,000, which would you rather pay: the tax on $100, or the tax on $10,000?
Make sure you check to see if this is an option for you.
During this important time of open enrollment, a little bit of time spent digging through your benefit packet may save you a bunch of money, and help put your family on the path to financial security.