Open enrollment is often treated as an annual HR task: review your benefits, make a few selections, and move on.
But your employee benefits are an important part of your overall financial plan. The choices you make during open enrollment can affect your taxes, cash flow, retirement savings, insurance coverage, and even your long-term financial goals.
Before you simply re-elect last year’s choices, take a few minutes to consider whether your benefits still make sense for where you are today.
Health Insurance: Look Beyond the Premium
When comparing health insurance plans, it can be tempting to choose the option with the lowest monthly premium. But the lowest premium option is not always the most cost-effective choice.
Look at the entire picture, including:
- Monthly premiums
- Deductibles
- Copays and coinsurance
- Out of pocket maximums
- Prescription coverage
- Provider networks
- Expected healthcare needs for the coming year
A plan with a higher premium may make sense if you anticipate significant medical expenses, while a lower premium plan with a higher deductible could be attractive if you generally have low healthcare costs.
The right choice depends on both your expected healthcare needs and your broader financial picture.
HSA: A Benefit Worth a Closer Look
If you are eligible for a Health Savings Account (HSA), open enrollment is a good time to revisit how much you want to contribute.
An HSA is particularly valuable because it offers three potential tax advantages:
- Tax deductible contributions
Contributions can reduce your taxable income. - Tax deferred growth
Money in the account can be invested and grow without being taxed each year. - Tax free withdrawals for qualified medical expenses
Withdrawals used for qualified medical expenses are tax free.
Unlike a Flexible Spending Account (FSA), HSA funds remain yours from year-to-year and can continue to grow over time. For some people, an HSA can function as both a way to pay for current healthcare costs and a long-term savings vehicle for future medical expenses.
If you are considering switching to an HSA eligible high-deductible health plan, be sure to evaluate the higher deductible and potential out of pocket costs alongside the tax benefits and employer contributions.
FSA Contributions: Don’t Leave Money on the Table
Flexible Spending Accounts can also provide valuable tax savings, but they require a little more planning. As well, you generally cannot participate in both a Healthcare FSA and an HSA at the same time.
Healthcare FSAs allow you to set aside pretax dollars for eligible medical expenses. Dependent Care FSAs can help cover qualifying childcare expenses.
The important thing is to estimate your expenses realistically. Depending on your employer’s plan rules, unused FSA funds may be subject to forfeiture or limited carryover.
Before choosing a contribution amount, think about your expected medical, dental, vision, and dependent care expenses for the upcoming year.
Retirement Contributions: Check Your Percentage
Open enrollment is also a natural time to revisit your retirement plan contributions.
If your salary has increased, your cash flow has changed, or you’ve recently paid off a debt, you may have an opportunity to increase your retirement savings.
At a minimum, make sure you take full advantage of any employer matching contribution available through your retirement plan.
Even a small increase in your contribution percentage can make a meaningful difference over time because of compound growth.
And remember, your retirement contribution is not an isolated decision. It should be considered alongside your other savings goals, tax strategy, cash flow needs, and overall retirement plan.
Traditional vs. Roth: Don’t Automatically Pick the Same Option
Many employer retirement plans offer both Traditional and Roth contribution options.
With Traditional contributions, you generally receive a tax deduction today and pay income taxes when the money is withdrawn in retirement.
With Roth contributions, you pay taxes on the money today and qualified withdrawals in retirement are generally tax free.
Neither option is universally better. The right choice depends on factors such as your current tax bracket, expected future tax rate, income, retirement timeline, and broader tax planning strategy.
Open enrollment is a good reminder to revisit this decision rather than automatically continuing with last year’s election.
Disability Insurance: Protect Your Income
Your ability to earn an income is often your most valuable asset.
Many employers offer short term and long-term disability insurance as part of their benefits package. During open enrollment, review how much coverage you have, how long benefits would last, and what percentage of your income would be replaced.
Also pay attention to who pays the premiums and how the premiums are treated for tax purposes. In certain circumstances, the tax treatment of disability benefits can depend on who paid the premiums and whether those premiums were paid with after tax or pretax dollars.
For many people, protecting their income is an important part of their overall financial plan.
Life Insurance: Has Anything Changed?
Open enrollment is a good opportunity to revisit your life insurance coverage, particularly if you’ve experienced a major life change.
Consider whether you’ve:
- Gotten married or divorced
- Had a child
- Purchased a home
- Taken on additional debt
- Experienced a significant change in income
- Changed jobs or employers
Employer-provided life insurance can be a valuable benefit, but it may not always be enough to meet your family’s needs. It’s worth looking at your employer coverage alongside any individual policies you already own.
Don’t Forget Your Beneficiaries
While you’re reviewing your benefits, take a few minutes to check your beneficiary designations.
Retirement accounts and life insurance policies generally pass according to their beneficiary designations, which means those designations can be extremely important.
A marriage, divorce, birth of a child, or other significant life events may be a good reason to review and update them.
Make sure your beneficiary designations align with your current wishes and your broader estate plan.
The Benefits You Don’t Think About
Open enrollment often includes a long list of additional benefits that can be easy to overlook.
Depending on your employer, these might include:
- Dental and vision insurance
- Legal services
- Identity protection
- Long term care insurance
- Accident insurance
- Critical illness coverage
- Pet insurance
- Wellness programs
- Commuter benefits
Not every benefit is necessary for every person. The goal isn’t to enroll in everything available. Instead, consider which benefits provide meaningful value based on your personal circumstances.
Open Enrollment Is More Than Selecting Health Insurance Coverage
Your employee benefits are part of your compensation and should be considered as part of your overall financial plan.
A few decisions during open enrollment can influence how much you save, how much you pay in taxes, how your family is protected, and how prepared you are for future expenses.
Before you hit “submit” on your elections this year, ask yourself:
Has anything changed in my life or financial situation since last year’s enrollment?
If the answer is yes, your benefits may need to change too.
At Astoria Strategic Wealth, we can help you look at employee benefits as one piece of the larger financial picture. Coordinating your benefits with your cash flow, investment strategy, tax planning, insurance needs, and long-term goals can help ensure that the decisions you make at work support the plan you’re building everywhere else.
