By Allen Giese, CLU®, ChFC®, ChSNC®

Did you know you can pay up to $3,000 per year of your health insurance premiums with pre-tax money through your deferred comp plan in retirement? It’ll save you a lot of money. Here’s how.

As a public safety worker, you can pay qualified health care premiums up to $3,000 directly from your 457(b) deferred compensation plan. Thanks to the Healthcare Enhancement for Local Public Safety Act, or HELPS, you have this valuable benefit. But we see so few of you who know about it and even fewer who take advantage of it. It makes a difference, and it’ll save you some serious tax dollars.

So, who can benefit from this? The public safety employees that can use this benefit include police; border protection and customs officers; corrections officers; specified federal law enforcement officers; firefighting services employees, including federal firefighters; emergency medical services employees; and air traffic controllers.

Look, health insurance premiums just keep rising—and they’ve been rising at a rate much faster than inflation. According to the Kaiser Family Foundation, health insurance premiums have gone up 47% over the past 10 years (as of the end of 2023), while the inflation rate has gone up about 30% over that same period. You need every advantage you can get—and this is a big one.

To qualify for this, premiums have to meet all three of these criteria: First, it has to be health or long-term care insurance, and that includes dental, vision, and Medicare Part B—which nearly everyone’s gonna pay once you hit 65. Wouldn’t you rather pay it pre-tax?

Second, the coverage has to be on you, your spouse, or your dependents.

And third, distributions must be paid directly from the retirement plan provider to the insurance provider. So, once you set this up, you don’t even have to deal with it every month. It’s done for you!

So now think about your deferred comp plan for a minute. This makes that plan all that much more important to you in retirement. A few things to consider. First, you don’t want to spend all the money in your deferred comp plan when you retire. If you’re separating from service around the age of 50, we typically recommend earmarking at least $60,000 to $75,000 of your deferred comp balance for this.

So, let’s say you have $100,000 in your deferred comp when you retire. Think of at least $60,000 of that as money you really can’t spend on anything else, or you’re not going to have enough to take advantage of this over the rest of your life.

Second, avoid the less-than-astute advisors' advice to roll over your deferred comp plan into an IRA or annuity. You’ll lose this benefit. It’s a mistake we see made often by the guys out there looking to sell you products and earn commissions. Don’t let that guy do that to you.

And third, take a look at your funding level into your deferred comp. Is it enough? Will you be able to take advantage of this?

We’re here to help you figure it all out. We’re fiduciary advisors, and we don’t sell investment or insurance product! We’re financial planners. Just give us a call, and let's talk. I think you’ll be glad you did. Thanks for watching, feel free to hit that subscribe button on this page—and thanks for everything you do for the rest of us. Stay safe out there.