Have you ever been surprised by the amount of paperwork you receive during your onboarding? Starting a new job comes with much more than setting up your direct deposit to receive your payment. The onboarding process comes with essential documents that can affect how much money you bring home each payday, how you take care of your health, how tax day may impact you and how you contribute to your life when you retire. This paperwork can be intimidating. Sometimes it feels like you have to quickly figure out how to make the best option for yourself by yourself. However, you are not alone. ESSENCE asked three career coaches for their advice on making the best decisions around our 401k, healthcare and taxes.
Being prepared and understanding what you are signing up for will help you confidently start your new job without surprises. Here are their tips to making an informed decision:
Understanding 401k
Although your work life is just starting, thinking about retirement is essential. When beginning a job, your company may have 401k or other retirement options. You will have to decide whether to participate in this benefit when completing onboarding paperwork. “It is never too early to start planning for retirement, so participating in your company’s 401k when you are eligible is an excellent money move,” shared Sarah Morgan, CEO of BuzzARooney LLC, a coaching and consulting company. Her company works with organizations to help them create more equitable and inclusive cultures while coaching executives and HR professionals in the same areas. With every paycheck, you will be deducted a pre-tax amount that you choose to be placed in your 401k. Most companies will then match your contribution to put towards this retirement fund.
“You can borrow against and withdraw from your 401k for purchases like cars, homes, educational expenses – and pay yourself back with interest! These are all great ways to make your money do more work for you,” Morgan said. If your company doesn’t offer 401k, Morgan suggests other retirement options to look into, like an Individual Retirement Account (IRA) or a taxable brokerage account (TBA) through TD Ameritrade or Ally. “Do your research online to make sure you understand the associated fees and broker responsibilities, so you don’t end up taken advantage of. Also, remember that IRAs and TBAs are almost always going to be post-tax contributed, so you won’t get the same tax breaks as you will with your 401k plan,” she shared.
When you are just starting your career, rent and student loans can take up a lot of your salary and limit what you can contribute to your retirement. “Calculating your contribution should always be based on what you can afford. Depending on your personal expenses, this may mean 1 or 2% of your earnings. That is totally ok! Something is better than nothing as a starting point. You can always increase your contribution later when your expenses allow or when you get a raise at your job,” shared Morgan. If possible, Morgan suggests contributing what your employer is matching if you can afford it. If your company will match up to 4% of your salary, Morgan says to contribute at least 4%. “If they offer 4% and you contribute 2%, you have left 2% on the table and cheated yourself of that free money,” she explained. Check-in with the retirement advisors often to set goals and check on your investments. Once you leave a company, the 401k contributions stop. “However, the money that you contributed, the interest gained from it, and some if not all of the match from your employer are still yours to keep,” Morgan said. Reach out to your employer to see the options for rolling your 401k to your new employer, cashing out with a penalty, or doing a solo 401k if you are becoming an entrepreneur. “Your retirement is not a slow cooker chicken – don’t just set it and forget it!”
Understanding your healthcare options
“You never know when you’ll be in need of healthcare as things happen quickly – say if there’s a sickness or illness or accident, you’ll want to be prepared for any moment where things can turn,” shared Latesha Byrd, the CEO & Founder of Byrd Career Consulting. She operates a talent development consulting agency serving organizations and top talent at the intersection of career empowerment, diversity, equity, inclusion and leadership development.
Some employers offer several options for healthcare that you should consider when starting your job. With those options come different plans with different coverage levels and pricing. “Understanding your healthcare options will also help you plan for budgeting purposes. Certain plans cost more than others, and choosing the right plan takes a good bit of planning for the future while also finding a plan that’s most suitable for your current financial situation,” Byrd said.
Where you are in life may determine what type of plans you consider and how much you invest in your healthcare. If you are at a life stage where you plan to expand your family through birth or adoption or bring in a parent or sibling into your household, think about what will provide the best coverage for your family. Even chronic illnesses that you may have should be considered when finding a plan if the medicine is a consistent part of your budget and frequent doctor appointments are a way of life. The cheapest healthcare option may not dent your paycheck, but the medical costs will hit your pockets down the line. “It’s those out-of-pocket costs that add up, and if we aren’t asking the questions upfront of what’s covered and not – we may end up paying more than we planned or accounted for,” she shared. Byrd suggests seeking a financial advisor to work with to help make better financial decisions. “I personally hired a money coach to help me with budgeting, improving credit, building savings, paying off debt and deciding healthcare options. Now I feel like I’m set up for my future,” she added.
Byrd says that professionals often don’t ask enough questions before receiving a job offer. It blindsides us when we learn that benefits were left on the table because we did not inquire enough. “Be sure to ask for the full compensation package. Salary only makes up 70% of the package, and many benefits can be negotiated, alongside salary; she said, “healthcare spans behind the physical, including mental and emotional health and wellbeing,” she said.
Understanding tax forms
One of the necessary forms to get right when starting a new job is your tax form. Kimberly B. Cummings, the founder of Manifest Yourself, agrees. “Tax forms have long-term consequences that many professionals forget about when they are rushing through filling out a virtual pile of onboarding paperwork. The more money you make, the larger the consequences at the end of the year.” Manifest Yourself is a leadership development company providing tailor-made solutions to hire, develop, engage, and retain women and people of color. Cummings suggests reaching out to a CPA for help when filling them out but recommends taking out more taxes versus less when deciding to claim 0 or 1. “Overpaid taxes this year? You’ll get a lovely refund check at the beginning of the next year. However, there’s no worse feeling than when you expected a refund check, and you end up cutting a check to the IRS at the end of the year because you didn’t pay enough taxes,” she said.
When the paperwork continues to be overwhelming, talk to an HR professional about your options and ask for an extension for when you submit the paperwork so that you can spend time making an informed decision about your future.