There are two main things financially to look for when searching for, interviewing with, and receiving your first job offers. These two things are retirement account contribution MATCHING, and health insurance plans. I emphasize matching, because most employers will and should offer retirement accounts, and if they don’t that should be a red flag for the job in and of itself. If the company doesn’t prioritize retirement savings for its employees, that is an early sign that the company most likely won’t treat you well.
Retirement Contribution Matching
There are a variety of retirement accounts you may see get offered to you through your employer depending on the type of company. Based on what type of company you work for, either a non governmental, for profit or a governmental or nonprofit, you will be offered different types of accounts.
First you may see an account offered called a 401(k), and I am sure you have heard of this before. This is the most commonly offered account through non-governmental and for-profit companies. There will be contribution limits to this account that change each year, and 2023 is $22,500. You also have to wait until age 59.5 to take any of the money out. The main benefit of this account is that any buying or selling of stocks or funds through this account is tax free! This account can also be Roth or Traditional. Roth means your contributions to this account have to be POST tax money, but you won’t get taxed when taking money out. Traditional is the opposite- you get taxed when taking money out, but don’t put taxed money into the account. An SEP IRA(Simplified Employee Pension IRA) may also be offered, and this is simply a traditional IRA(you can read more about IRA’s HERE) offered through your employer.
There are also plans such as a 401(a), 403(b), and 457(b) offered by government and non profit employers. The 403(b) is identical to the 401(k), and the 401(a) is the same other than the fact that you are required to put a certain percentage of your income into the account and the employer MUST match. The 457(b) is specifically advantageous for middle aged high earners, because it is only offered as a traditional account and you can take out the money from the account as soon as you leave the job!
Most employers offer you the ability to contribute money to a retirement account, and a lot of employers will also offer you a match for that account as well. A match is simply the employer saying that they will contribute the same amount of money you contribute to the retirement account, up to a certain proportion of your income. You can look at these as free money, and it NEEDS to be taken advantage of! The cost of not taking advantage of this is huge, because of how large of a benefit the match is!
A typical match will look like this… “A 100% match on the first 3% of your income”. Those two numbers may change based on the company, and your eligibility for a match. In the match shown above, if you made $100,000 per year, any money you put into your retirement account up to $3,000, your employer would match 100% of that same amount out of their pocket.
Finally, you can compare employers' matches by the way you become eligible for these matches(you may hear this called “vesting”) and the size of the matches. You can be immediately eligible for a match(immediate vesting), you may be fully eligible for the entire match after a certain amount of time working for the company(cliff vesting), or you may gradually get a higher match as you work for the company(graded vesting) as you can see below.
The percentage changes how much of a percentage of your contribution they match. For example, if you contribute $1000 in your second year at the company, they would contribute $200.
You must compare these matches, see which employer match allows you to get the most amount of money invested the fastest. Again, this match is basically free money and should incentivize you to invest your money into these accounts to take advantage of the match.
Health Insurance Plans
To understand the types of health insurance plans you may encounter through your potential employer, you must understand some basic terminology first. Below is a list of the terms and you can see a graphic of how these play out below that.
Premiums: The amount you pay insurer each month regardless of your medical expenses
Deductible: How much you must pay in medical expenses before insurance kicks in
Co-insurance: This is when the insurer will pay a certain percentage of your medical expenses(usually 80%) once the deductible is reached
Out of Pocket Maximum: Once you have paid this amount of money out of your own pocket, your insurer will pay 100% of medical expenses under the plan
There will usually be two main types of health insurance you should care about and pay attention to: comprehensive and high deductible plan
Comprehensive Plan
The comprehensive plan is going to usually have lower deductibles, but higher premiums. This plan is good for older or less healthy individuals who expect to have more medical expenses, because you will pay less out of pocket trying to reach your deductible and in turn most of the expenses you would incur under this plan would be the high premiums. This plan has access to a Flexible Savings Account(FSA), which is a “use it or lose it” account that you can use on qualified medical expenses.
High Deductible Plan
The high deductible plan(like it sounds) has higher deductibles, but lower premiums. This is typically a better account for younger, healthier individuals who may not incur many medical expenses throughout the year, which makes it more valuable to have lower premiums. If you aren’t needing to take advantage of the insurance, why pay high premiums? That is why this plan is so good for healthier individuals.
This plan also has a Health Savings Account(HSA), which is comparable to the FSA in a comprehensive plan, but much better. You can invest the money you put into this account, and it is not “use it or lose it” at the end of each year. This plan is also greatly tax advantaged. When you put money into this account it reduces your taxable income, you don’t get taxed when you buy and sell stocks in this account, and you can take money out of this account for qualified medical expenses tax free! This means you could pay no taxes on the money you put in this account, and this is why the HSA should be toward the top of your priority list of which accounts to put money in. Additionally, if you want to take the money out of the account for non medical spending you must wait until age 65.
Below you can see a comparison of an FSA and an HSA.
When you are deciding which insurance plans are best for you, put them side by side and take into account your health and age. I would also advise that you seriously consider the importance of having an HSA. The taxes you will avoid and money you can invest through this plan can have a monumental impact on your finances.
I hope this post helps you understand what to expect more when you may be applying to jobs in the future or if you currently are! Remember to check out the resources tab on my website as well as the other blog posts! If you have any specific questions about the blog or personal finance questions in general you can always contact me through my website!
