Benefits explained

- Hi everyone, Sal here. What I wanna do in this video is really gush go through a bunch of terms that you're going to see when thinking about benefits from your employer. And the whole goal here is so that you're never lost when you hear an acronym like 401k or, well that's more of a part of the tax code, or FSA or HSA or anything like that. We're just going to explain all of that in this video, at least so that you have a good start and you don't feel intimidated when you hear these terms. So the first term I will talk about is health insurance contribution. So health insurance costs money and many times the employer will pay some or all of that for the premium. Remember, in other videos we talk about how the premium is what someone pays the insurance company in order to insure you. So health insurance contribution is either your employer paying for your health insurance or maybe in many cases they might pay for 80 or 90% of your health insurance, 'cause you might have different options, some more expensive than others. And so you might have a little bit of skin in that game as well where you have to pay 10 or 20%. In many cases, it might also cover for dependents if you have a partner, if you have children, they might cover 50% of the premium for them, or in some very generous organizations might cover 80, 90% of the premiums for dependence as well. Another type of benefit is retirement benefits. The most common retirement benefits you're gonna see from your employer these days are 401k. And as I mentioned, that word, the term 401k comes from the tax code. But what it allows you to do is put money aside pre-tax. So you're not gonna pay money, you're not gonna pay tax on that money right now. You might have to pay it later on when you use it during retirement. But it allows you to set money, set aside money, pre-tax in a 401 account and invest in it without having to pay taxes. And then later on when you're retired, you might have to pay taxes on it, but you might have a lower tax rate at that point. Now the reason why it's an employer benefit is it tends to be sponsored by your employer and many employers will also match your 401k in order to provide an incentive for you to participate in that. And we give a lot of other videos where we go into details into 401k programs, but they might match dollar for dollar 1% of your income, 2% of your income, or in some cases, even more than that. Now another term, and this is one that I've been confused when I had my first job, is FSA. This is a flexible spending account and it can be used. The reason why it's flexible, it could be used for things like medical expenses, it could be used for childcare. And this allows you to put aside money pre-tax that you could spend on those things. If you didn't have an FSA and if you were to just pay for qualifying childcare, that's post-tax money. So you'd have to pay your tax out and then pay for it. Well here you get to use pre-tax money, which is a benefit 'cause you don't have to essentially pay tax on that money that you're spending on this qualifying childcare. Now there is one really important to think about with FSAs is that it's use it or lose it. So if you have $500 left in your flexible spending account, your FSA at the end of the year, you lose that. So you have to be very careful that if you are going to set aside a flexible spending account, that you use it all. Now, a related term, but one that's not quite as flexible but more focused on healthcare is a health savings account, HSA. This could be used for medical expenses. One way to think about it. Let's say you have a deductible, so your health insurance doesn't kick in for the first $5,000. Hey, that's your deductible in that year. So until you spend $5,000 of health insurance costs, you're paying all of that out of pocket. That could come from an HSA from an health savings account. Now what's good about health savings accounts is that they do roll over. So this isn't something where you have to say, oh, I gotta use it or lose it. You can, if you don't use a certain amount at the end of the year, that rolls over into the next year. So it's a little bit less stressful, at least from my point of view, that you don't necessarily have to use it all. Now other benefits that you might get, things like workers' compensation. This is a situation, let's say no one wants to fall into this scenario, but sometimes life happens where you get injured on the job, you have to climb a ladder and you fell down or you get cut in in some pretty bad way while you're working in the factory or whatever it might be. This is compensation from the employer to make up for that. It might be direct compensation for your injury, for your pain. It might be time off paying for your medical expenses. And if the injury is more severe, and it maybe keeps you from working for some period of time, it could turn much more into another similar idea, which is disability insurance. Disability insurance is usually not coming your employer might pay for this, but it's usually coming from an insurer and that's if you ever become disabled. So you're not able to do your job or not be able to work in general, that you still have a way of supporting yourself and your family. And so that's what disability insurance covers. And then life insurance. And when I was a kid, I was like, why does anyone get life insurance if I'm dead? Maybe you know, what's the insurance for? But once I had kids, I started to appreciate the value of life insurance. And that's essentially if you die, that your family gets something. Ideally, it's there to help cover expenses that you are providing before as an income earner. And so many employers will provide some level of life insurance. Now in many cases, it might not be enough life insurance for your family to live off if something happened to you, but it is something, although you might want to add your own life insurance above and beyond that. Now the last thing I will talk about in this grab bag video. Is when do you get a chance to choose whether you're going to have a health savings account or what you're gonna do with your 401k plan or which of these benefits you're going to elect? Well, there's really three times that you can do this. The most obvious time is when you start a job. So when you start, you're gonna be signing all sorts of paperwork. And I know you're eager to start, but that is a good time to think about the decisions you're going to make around benefits which health insurance plan, maybe dental plan, what you gonna do with an FSA, HSA, that's one time to do it. Once you're working, there's something called an open enrollment period. At Khan Academy, for employees of Khan Academy, it's a one week period, that's once a year. The HR, the human resources department will tell you about it. And that's your week where you have to re-enroll in some of your benefits or you have an opportunity to change them. Now the last time, or the third time or the alternative time where you can actually make tweaks to your benefits is after a qualifying event. Let's say you get married or you get divorced or you have a new child, these are all times that you will hopefully get an opportunity to tweak your benefits. So I will leave you there. I threw a lot at you, but we just wanted to make sure that when you are working and your people are telling you about your benefits, they're like, oh, I know exactly what an HSA is and hey, I can roll that one over versus an FSA and you'll sound awfully smart, but even more important, it's going to help you navigate your finances.