How to Make the Most of Open Enrollment
Open enrollment season is fast approaching, so you’ll soon be asked to decide which employer benefits you want to take advantage of. And while that may sound incredibly dry, it represents a big opportunity for you to strengthen your financial situation, which often gets overlooked and underused. Depending on what your employer offers, you can get help with everything from health care to childcare to retirement. The dollar value of these benefits can add up.
Health insurance is often the most significant and helpful benefit that most employers offer, and it’s also usually the most confusing. If you’re lucky, you’ll have many choices between different plans and maybe even different insurers, giving you plenty of opportunities to choose the right plan for your family’s needs. But with that opportunity comes the responsibility of understanding the differences between those choices, which is no easy task. So how do you sort through it all? First, don’t assume that the health insurance you chose last year is automatically, or even likely, the best choice this year. It is undoubtedly maybe, but it’s just as likely that one of the other options is better.
Health savings account (HSA)
Some of those health insurance options may allow you to contribute to a health savings account (HSA), which has a few significant benefits:
- HSAs allow you to deduct contributions and use that money tax-free for qualified medical expenses, which essentially significantly discounts health care.
- HSAs are not “use-it-or-lose-it,” meaning that any money in your account at the end of the year rolls and can be used in future years, even if you no longer have an HSA-eligible health insurance plan.
- Your employer might contribute some money to your HSA.
- HSAs can be powerful retirement accounts if you can now contribute and pay for your medical expenses through other means.
Only specific high-deductible health insurance plans allow you to contribute to an HSA, and it’s far from guaranteed that such a plan will be the right choice for you and your family. But it’s worth understanding what’s available to you to make a fully informed decision.
On May 16, 2023, the Internal Revenue Service (IRS) announced the HSA contribution limits for 2024:
- $4,150 for individual coverage
- $8,300 for family coverage
Healthcare Flexible Spending Account (FSA)
A healthcare flexible spending account (FSA) is similar to a health savings account. The money you contribute is tax-deductible and can be withdrawn tax-free for qualified medical expenses. The most significant difference is that a healthcare FSA is basically “use-it-or-lose-it.” Your employer is allowed to let you roll over up to $500 for the following year.
The IRS has not announced 2024 contribution limits yet, but in 2023 the annual limit was $3,050 per individual.
Dependent Care Flexible Spending Account (FSA)
This one is a significant potential benefit, and it’s also often overlooked by young families who send their children to daycare, and both parents work.
This is essentially the same as the flexible healthcare spending account, just for dependent care expenses (childcare) instead of medical expenses. Your contributions are tax-deductible, and you can withdraw the money tax-free for eligible dependent care expenses.
Employer Retirement Options
Open enrollment is a good opportunity to make sure that you’re taking full advantage of the retirement plans available. Here are some key questions to ask as you look through the information you’re given:
- What types of retirement plans are available to you? Is there a 401(k)? A 403(b)? A pension plan? An ESPP (Employee Stock Purchase Plan)? Something else? Different plans have different strengths and weaknesses, and simply knowing what you have is the first step toward figuring out how to take advantage of them.
- Is there an employer match? If so, what is the policy, and are you taking full advantage of it? That match is likely the best return you’ll find anywhere, so it’s worth contributing enough to get it if you can.
Many companies offer a base level of life insurance at no cost, with the option to buy more if you’d like. However, employees commonly misunderstand that they can take company-sponsored insurance coverage with them when they leave a job. Unfortunately, in most cases, the group life insurance policy is not portable, leaving the employee lacking quality life insurance protection.
An individual life insurance policy is owned by the employee and can be purchased from various carriers. Meanwhile, group life insurance is a single carrier policy owned by the employer, and the employee is only covered under a certificate. Typically, employers will purchase a small amount of group life insurance for the employee, for example, $50,000, and allow the employee to purchase additional group life insurance. This coverage is significantly inadequate.
There may also be coverage limitations on the additional group life insurance purchased, such as a $300,000 limit or spousal coverage limits, like a spouse can only purchase 50% of the employee’s coverage. This is also inadequate since a family of four with two school-age children may need $1 million for each parent. If you want to know what an individual policy will cost to compare rates, use the link below: Get a free quote!
Other benefits to keep an eye out for
Those are the significant benefits you’ll have to decide on, but there are plenty of others to keep an eye on. Every employer is different, but here’s a partial list to keep an eye out for:
- Dental and Vision Insurance
- Wellness programs
- Short-term and Long- term disability insurance
- Education assistance
- Vacation time, sick time, and personal days– Make sure you know how these policies work to take full advantage of them when they arise.
Have you recently left a job and have leftover PTO? Defer Your Unused Vacation Pay into Your New Employer’s Plan!
Make the most of open enrollment
Open enrollment is often overlooked, but in many cases, it’s a great way to find cost-effective protection and significant savings on things like health care, childcare, and more.
If you have questions or want to see if you should enroll in a specific benefit to help with your overall financial plan, set up a 30-minute phone call with us. We would love the opportunity to help you.