Ask Jill:

What You Should Know About Open Enrollment (Part II)

A monthly Q&A with Jill Schlesinger, CFP®, host of the Jill on Money podcast

Disclaimer: Jill Schlesinger is an ambassador for Marcus by Goldman Sachs and has received financial compensation. However, all thoughts and opinions are hers.

Marcus by Goldman Sachs is the sponsor of the Jill on Money podcast, featuring Jill Schlesinger, a Certified Financial Planner, CBS News Business Analyst and author of the new book “The Dumb Things Smart People Do With Their Money”. Listen to her podcast on Apple and Stitcher.

The Scenario:

Open enrollment season is quickly approaching and the choices can be overwhelming.

The Question:

Other than the benefits I should take advantage of during open enrollment season, what other employer benefits should I be maximizing?

Jill’s Take:

In the second part of this series, let’s look at retirement savings and education benefits.

Retirement savings

Traditional Plans: In 2019, participants in 401(k)s, 403(b)s, most 457 plans and the federal government Thrift Savings Plan were able to make a maximum pre-tax contribution of $19,000, with a bonus catch-up amount of up to $6,000 for employees ages 50 and older. These amounts do not include employer matches. Remember: it’s wise to make sure you’re contributing at least enough of your own money to take advantage of your employer’s matching program, if it’s offered.

If your plan provider allows for automatic contribution escalations, choose it! By doing so, you can make sure that you are increasing your contribution level each year. While you’re at it, if there is an “auto-balancing” feature, use that too – it will keep your investment allocation in line with your desired target percentages for each holding.

Roth Plans: Nearly three-quarters of plans are offering Roth 401(k)s to participants, yet only about 7.5 percent of participants are using them. As a reminder, with a Roth, workers make contributions using after-tax dollars and then are able to take tax-free withdrawals in retirement, as long as they follow the rules of the plan.

If your plan provider allows for automatic contribution escalations, choose it!

Roth 401(k)s are great for those who expect their tax brackets to rise in the future, and for higher income employees since Roth 401(k)s are not subject to minimum distribution requirements after age 70½, as long as they are rolled over to a Roth IRA.

Mega Backdoor Roth Conversions: This is a little complicated, but first understand that a backdoor Roth IRA conversion is a strategy that allows those with earned income that is too high to qualify for a Roth contribution to make an after-tax contribution into an IRA and then immediately convert it into a Roth IRA. There are specific rules about how to do this, so you need to be careful. Given the complexity and potential tax risks of backdoor Roth conversions, it’s a good idea to speak with your financial advisor if you’re considering one.   

A step up from a backdoor Roth is the mega backdoor Roth. This is a super-sized backdoor Roth for those who have a 401(k) at work – either a traditional or Roth –that allows your contributions to get even more money (up to an additional $37,000) into a Roth account. The IRS has blessed this strategy, but there are specific steps that you will need to follow in order to comply. Your employer also has to offer something called an in-service rollover to a Roth IRA or let you move money from the after-tax portion of your plan into the Roth 401(k) part of the plan.

Education

Paying Off Student Loans: According to the 2019 Society for Human Resource Management survey, “employer-provided student loan repayment as a benefit has doubled since 2018 from four percent to eight percent.” Taking advantage of this benefit should be a no-brainer if you’re paying down student debt and your company offers this perk.

Reimbursement for continuing education: This valuable benefit is tougher to find, but some employers still help pay for undergraduate, graduate and certificate classes. There is usually a requirement that workers earn at least a “B” to qualify for reimbursement.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.