How to Make the Most of Open Enrollment

Open enrollment season is fast approaching, which means that you’ll soon be asked to make a number of decisions about which employer benefits you want to take advantage of.

And while that may sound incredibly dry, it actually represents a big opportunity for you to strengthen your financial situation, one that often gets overlooked and underused.

Depending on what your employer offers, you can get help with everything from health care, to childcare, to retirement, to life and disability insurance, and more. And the dollar value of all those benefits can really add up.

But there’s a lot to sort through and this post will help you do it. We’ll walk through all the major benefits that might be available to you and what you should be looking for with each so that you can make the most of your open enrollment opportunities.

Health insurance

Health insurance is often the biggest and most helpful benefit that most employers offer, and it’s also usually the most confusing.

If you’re lucky, you’ll have a number of choices between different plans and maybe even different insurers, giving you plenty of opportunity 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, to be the best choice this year. It certainly may be, but it’s just as likely that one of the other options is better.

Second, you can follow a relatively simple process to find the right plan for your budget and your family’s needs. I detail that process here: How I Choose Health Insurance for My Family.

If you have a spouse or partner, you can include their health insurance options in that comparison as well. Then you can make the best decision for you and your family based on cost and coverage.

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 big benefits:

1. HSAs allow you to deduct contributions and use that money tax-free for qualified medical expenses, which essentially serves as a big discount on health care.
2. HSAs are not “use-it-or-lose-it”, which means that any money that’s in your account at the end of the year simply rolls and can be used in future years, even if you no longer have an HSA-eligible health insurance plan.
3. Your employer might contribute some money to your HSA.
4. HSAs can be powerful retirement accounts, especially if you’re able to contribute now and pay for your medical expenses through other means.

Only certain 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 so that you can make a fully informed decision.

For 2019, the maximum amount you can contribute to an HSA is $7,000 if you’re on a family health insurance plan and $3,500 if you’re on an individual plan.

Dental and vision insurance

Luckily, dental and vision insurance are much less complicated than health insurance. Also luckily, you can use the exact same process you used when comparing health insurance options to compare your dental and vision options.

In general, both of these benefits are fairly inexpensive. I almost always recommend that my clients accept the dental coverage, and the same is true of vision coverage if anyone in the household might need those services.

Health care flexible spending account (FSA)

A health care flexible spending account (FSA) is very similar to a health savings account. The money you contribute is tax-deductible and can be withdrawn tax-free for qualified medical expenses.

The biggest difference is that a healthcare FSA is largely “use-it-or-lose-it”. Your employer is allowed to let you roll over up to $500 for the next year, but any amount above that that’s still in your account at the end of the year is lost.

You also generally aren’t allowed to change your regular contribution until the next open enrollment period. So if you get halfway through the year and realize that you’re contributing more than you’ll be able to use, you’re kind of out of luck.

Finally, you generally aren’t allowed to contribute to both an HSA and a health care FSA in the same year, though there are exceptions. So if you do have access to both an HSA and an FSA, you’ll likely have to decide which one is better for you.

All of which means that you should be careful not to over contribute to this account and risk losing money you don’t use. But for medical expenses you do expect to have, a health care FSA offers powerful tax breaks that lessen the cost of those services.

The IRS hasn’t announced 2019 contribution limits yet, but in 2018 the annual limit was $2,650.

Dependent care flexible spending account (FSA)

This one is a big potential benefit, and it’s also one that’s often overlooked.

This is essentially the same as the health care flexible spending account, just for dependent care expenses (read: childcare) instead of medical expenses. Your contributions are tax-deductible and you can withdraw the money tax-free for eligible dependent care expenses.

What that means that is by contributing to a dependent care FSA, you essentially get a discount on childcare and other dependent care expenses equal to your tax bracket. So if, for example, you’re in the 22% federal income tax bracket and the 5% state income tax bracket, you’re essentially getting a 27% discount.

Now, this money is also “use-it-or-lose-it”, but the good news is that childcare expenses are, for the most part anyways, much more predictable than medical expenses. As long as you have a reasonable estimate for next year’s childcare bill, you should feel comfortable contributing up to that amount.

One thing to keep in mind here is that any expenses that are paid from your dependent care FSA reduce the amount you can claim for the child and dependent care tax credit. And while it would require a close look at your personal tax situation to know which one of these is likely to provide the biggest benefit, in general it’s higher income individuals who stand to benefit more from the flexible spending account and lower income individuals who stand to benefit more from the tax credit.

The IRS hasn’t announced 2019 contribution limits yet, but in 2018 the annual limit was $5,000.

Retirement plans

Open enrollment is a good opportunity to make sure that you’re taking full advantage of the retirement plans available to you. 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? Something else? Different types of plans have different strengths and weaknesses, and simply knowing what you have is the first step towards 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.
• Is there a vesting schedule on that match? If so, what is it? The existence of a vesting schedule likely shouldn’t keep from you contributing, but it’s still helpful to understand.
• What are your investment options? Are you making the most of them?
• Are Roth contributions allowed? If so, this post will help you decide whether they’re worth making.
• If you’re already maxing out all your retirement accounts and still want to contribute more, do you have a 401(k) that allows for a Mega Backdoor Roth IRA?

Life insurance

While I almost always encourage people to get life insurance outside of work if they can, it’s still a good idea to understand what your employer offers so that you can take advantage of any opportunities to get easy, low-cost coverage.

Many companies offer a base level of life insurance at no cost to you, with the option to buy more if you’d like. If you don’t already have enough individual coverage outside of work, this could be a good opportunity to get that coverage in place until you’ve secured your own policy.

You may also be able to get inexpensive coverage on your spouse and children, which could be worthwhile as an extra security blanket.

One last point here is that while you may receive a base level of “accidental death and dismemberment coverage” for free, I generally don’t advise my clients to pay for additional coverage. It’s purpose is already handled in more comprehensive ways by life and disability insurance.

Long-term disability insurance

This is another benefit where you can find some real value.

If your company offers long-term disability insurance at all, there’s a good chance that you’re automatically enrolled in a base level of coverage with the opportunity to pay for more.

For example, you might have coverage that would pay 50% of your salary each month for free, with the opportunity to buy additional coverage that would bring that benefit up to 66.7% of your salary.

And even though individual long-term disability insurance that you secure on your own typically provides better protection than employer-provided coverage, this is still usually a benefit that’s worth taking advantage of.

The main reason is that individual disability insurance can be both difficult to get and expensive to maintain. So even if you plan on applying for disability insurance on your own, taking advantage of potentially cost-effective coverage from your employer is often a good idea.

For more on disability insurance and the specific features to look for, you can read this guide: Disability Insurance: The Crucial Protection You Probably Don’t Have.

Other benefits to keep an eye out for

Those are the major benefits that you’ll have to make decisions 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:

• Short-term disability insurance – In most cases you’ll either have short-term disability insurance or you won’t, with no choice involved. Still, it’s worth understanding your benefits, especially if you might be having a baby during the next year, so that you can maximize the amount of money you receive while you’re out of work.
• Vacation time, sick time, and personal days – Make sure you know how these policies work so that you can take full advantage of them when the need arises.
• Parking and transportation benefits – Some companies will pay for some portion of your commuting costs.
• Wellness programs – You may be able to save on your health insurance premiums or otherwise receive money simply for participating in certain health-related programs.
• Legal services – Some companies offer discounted legal services with participating attorneys. This could be useful for estate planning and other legal needs.
• Education assistance – Your employer might help with the cost of taking classes. Just make sure you understand all the requirements that come with this assistance, as they can occasionally be pretty strict.
• Discounts on home and auto insurance – You may be able to save some money on home and auto insurance by using certain companies endorsed by your employer.

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 big savings on things like health care, childcare, and more.

So it’s worth taking the time to look through all of the options available to you and ask questions when you want help understanding something. With the right decisions, you stand to save a lot of money and put your family in a better financial position.