Your Guide to Open Enrollment
Open enrollment is traditionally seen as the time to reassess your health insurance options, but with the employment landscape becoming more competitive, many companies are expanding their benefits packages. Employers are now offering perks such as legal assistance and gym reimbursements, among other appealing options, that employees should carefully consider. It’s also a key opportunity to review your financial benefits, as employers might provide additional life or disability insurance at a much lower cost than you’d find on your own, often with the option to keep coverage if you ever leave the company. Here’s what you should keep an eye on from a financial standpoint:
- Health Insurance Costs: Health insurance remains the most recognized aspect of open enrollment and one of the most crucial. Compare various plans by looking at monthly premiums, deductibles, maximum out-of-pocket limits, and coinsurance. Your goal should be to choose a plan that balances your medical needs with your budget.
- Tax-Advantaged Accounts: Health Savings Accounts (HSAs) are linked with high-deductible health plans (HDHPs) but are worth considering due to their unique tax benefits. For 2024, HSA contribution limits have increased to $4,150 for individuals and $8,300 for families, up 7% from last year. Unlike the “use it or lose it” nature of Flexible Spending Accounts (FSAs), HSA funds can roll over year after year, grow tax-free, and withdrawals for qualified medical expenses are tax-exempt. This triple tax advantage makes HSAs a powerful tool for managing healthcare costs and even long-term savings. The trade-off is the higher deductible and out-of-pocket expenses typical of HDHPs, which can be around $3,000 and up to $6,000-$8,000, respectively. Understanding these differences is essential for making the right choice.
- Retirement Contributions: Open enrollment is an ideal time to review your retirement contributions. For 2024, the contribution limit for employee contributions to 401(k) plans is $23,000, with an additional $7,500 catch-up contribution for those 50 and older. Increasing your contributions, if possible, can help secure your financial future. Employers may also permit “after-tax contributions,” which can be converted to a Roth IRA, enabling tax-free withdrawals later under specific conditions. Many employers default employees into target-date funds, but these may not suit your personal risk tolerance or financial goals. We often adjust our clients’ retirement portfolios to better align with their individual circumstances. Be sure to take full advantage of any employer match and ensure your investment strategy is consistent with your long-term objectives.
- Life and Disability Insurance: Most employers provide basic life insurance coverage equal to 1-2 times your salary. Depending on your family’s needs and financial obligations, you may want to purchase additional coverage. Employer-provided term life insurance is often cheaper than what you’d find on the open market and can sometimes be continued if you leave your job, though the cost might increase. Consider your financial obligations, such as income replacement, childcare, and funeral costs, when determining your needs. Similarly, evaluate your disability insurance coverage to make sure it’s adequate and explore supplemental coverage if necessary.
- Dependent Care Expenses: Many companies offer Dependent Care FSAs, which allow you to set aside pre-tax dollars for child or elder care expenses. However, keep in mind that you cannot use the same expenses for both the Dependent Care FSA and the Child and Dependent Care Tax Credit. Choose the option that provides the greater tax benefit based on your situation.
- Overall Financial Impact: It’s important to consider how each benefit impacts your overall financial picture and aligns with your budget. Benefits can quickly add up in cost, so ensure you have a sufficient emergency fund—ideally 3-6 months of expenses—held in a high-yield savings account or money market fund. Simultaneously, plan for long-term financial goals, such as retirement, home buying, education funding, and other significant life events. Balancing these priorities can be challenging, but it’s necessary to build a solid financial foundation.
Open enrollment is a valuable time to fine-tune your benefits package, helping you work toward your financial goals and safeguard your family’s future. Carefully evaluate all the options available and consider seeking advice from a financial professional. Our clients face unique and complex financial situations, and we assist them in navigating these challenges by providing clear goals and actionable steps. Partner with an advisor who helps you feel confident in your financial planning and work towards your personal vision of financial freedom.
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