By Clay Elliott, CFP®, AAMS®, CRPC®

In today’s economy, which currently features high levels of inflation combined with up to 62% of people living paycheck to paycheck, a comprehensive understanding of employee benefits isn’t just a perk—it’s a necessity. For most people, there’s not much wiggle room with their finances, which means we need to take advantage of every financial benefit you have at work. 

As plant workers contribute to the backbone of the industrial sector, ensuring their financial wellness becomes paramount. Beyond the immediate compensation, there are a number of options for retirement plans, life insurance policies, and healthcare choices that can significantly impact one’s financial trajectory (and that of their family).

Whether you have many years left in your career or you’re nearing your career sunset, this article sheds light on some of the decisions you need to make in order to help you maximize the benefits your hard work affords you.

Roth 401(k) vs. Traditional 401(k): The Tax Implications

Understanding the tax implications of Roth 401(k) and traditional 401(k) accounts is crucial. At their core, both options are designed to help individuals save for retirement, yet they differ substantially in how they’re taxed.

With a Roth 401(k), contributions are made post-tax. This means you pay taxes on the money before it goes into the account, but when the time comes to withdraw in retirement, the distributions are tax-free. Especially for younger workers or those who anticipate being in a higher tax bracket upon retirement, the Roth 401(k) can be a favorable choice. You bear the tax burden now but get to enjoy tax-free growth and withdrawals later.

On the other hand, the traditional 401(k) offers a tax-deferred benefit. Contributions are made pre-tax, reducing your taxable income for the year you contribute. However, once you retire and begin to withdraw funds, those distributions are taxed at your then-current tax rate. This can be advantageous if you expect to be in a lower tax bracket during retirement.

Ultimately, the decision between Roth and traditional 401(k) hinges on a variety of factors, including current and anticipated future income, lifestyle, and expected changes in the tax code. The last point is worth singling out. If our politicians decide to raise taxes in the future, you might be wishing you had opted for the Roth option, paid your taxes at the lower level, and not had to worry about any potential increases.

While that thought does make the Roth 401(k) a compelling option, it’s essential to assess every area in your personal financial circumstances and projections when making this pivotal choice.

Group Life Insurance: Is It Enough?

At its essence, group life insurance is a type of benefit typically offered by employers as a part of a broader benefits package. One of its primary advantages is its affordability. Since the risk is spread across a group of individuals, premiums tend to be lower, making it a cost-effective option for many employees. Additionally, most group policies don’t require individual underwriting, meaning you can get coverage regardless of any current medical issues you face.

However, the cost benefits of group life insurance may come with limitations. The most pronounced is its lack of something called portability. For instance, if an employee leaves their job, in most cases, they also leave behind their group life insurance coverage. This naturally raises the question: What if the next job doesn’t offer similar benefits? Suddenly, an individual could find themselves without protection for their loved ones if something were to happen to them.

This concern underscores the significance of considering an individual life insurance policy. Such policies are owned by the insured, offering consistency regardless of employment status. They act as a safeguard so that, irrespective of career shifts, there remains a protective layer for families. In essence, while group life insurance can be a valuable component of an employee’s benefits, its limitations suggest you should at least consider individual coverage to provide proper protection for your family. 

Managing Your Old 401(k) When Changing Jobs

When transitioning to a new job, don’t delay decisions about your old 401(k). While you might have the option to leave it with the existing provider, this can complicate your financial life if you accumulate multiple accounts over your career. 

A better strategy could be to roll the old 401(k) into a new employer’s plan or into an individual retirement account (IRA). This not only retains the tax benefits but also simplifies the investment management and helps you consolidate accounts. Given the significance of these choices, it’s wise to seek advice from financial professionals and trusted resources like FINRA as well as the IRS. 

Healthcare Benefits and Choices

When it comes to safeguarding both yourself and your family, choosing your ideal healthcare plan is near the top of the list. One avenue worth exploring is the health savings account (HSA), a tax-advantaged medical savings account available to taxpayers who are enrolled in a high-deductible health plan (HDHP). Beyond merely being an account for medical-related savings, an HSA offers a triple tax benefit: Funding an HSA lowers your taxable income in the current year, it can be invested with tax-free growth, and when funds are distributed for medical expenses, those are taken out tax-free. 

The big downside to these accounts, though, is that they are only available on an HDHP, which is not for everyone. A financial planner can help you determine if these plans are a good fit for you, as well as help you set up the account properly.

Maximize Your Employee Benefits to Realize Your Goals

Unpacking and taking full advantage of your employee benefits is a cornerstone to fully harnessing the rewards of your dedication and hard work. Without a deep grasp of tax implications, insurance policies, and retirement options, you might miss out on the best opportunities available to you.

At Oak Capital Financial Advisors, we recognize the unique challenges faced by plant workers. Our process helps demystify the intricacies of your benefits and guide you toward informed financial decisions. Pave the way for a brighter future for you and your family. Take the next step with us by calling 225-416-7373 or emailing [email protected].

About Clay

Clay Elliott is Owner and Principal Financial Advisor at Oak Capital Financial Partners, a financial services firm based in Port Allen, LA, dedicated to providing local financial advice held to the highest standards. Since becoming a financial advisor in 2016, Clay prides himself on working toward his clients’ best interests as a fiduciary. He provides comprehensive financial planning and educates his clients to develop robust wealth management strategies to help them pursue their financial goals. He loves helping people become financially independent and enjoys seeing them live out their financial plan successfully.
Clay holds a bachelor’s degree in marketing from Louisiana State University as well as the CERTIFIED FINANCIAL PLANNER™ designation. He is also an Accredited Asset Management Specialist and a Chartered Retirement Planning Counselor.

Outside of work, Clay enjoys spending time with his wife, Claire, and daughter, Camille, playing tennis, fishing, and attending LSU sporting events. An active participant in his community, Clay is involved with The Emerge Foundation Center for Autism, the West Baton Rouge Chamber as an ambassador and member of the Governmental Affairs Committee, is a board member for the Louisiana Chapter of the Financial Planning Association and West Baton Rouge Small Business Council, and a member of Port Allen Rotary Club. He was also named Young Professional of the Year by the West Baton Rouge Chamber of Commerce. To learn more about Clay, connect with him on LinkedIn.