It’s that time of year to make key benefit elections for 2019. From healthcare to savings and everything in between, taking time this fall to review and optimize your benefit decisions can save you money and headaches in the New Year.
Healthcare
It seems that every year health insurance costs, and what you have to pay out of pocket, keeps increasing. What if there was a way to see some tax savings on some of those expenses? Good news – there probably is!
Medical Flexible Spending Accounts (FSAs) allow you to defer funds from your paycheck pre-tax into an account. If you spend those funds on qualified medical expenses – including dental and vision costs, the withdrawal is also tax-free. Better yet, your contributions to an FSA aren’t subject to employment taxes like Social Security and Medicare.
That being said, FSAs do have their constraints. They have a ‘use-it-or-lose-it’ feature that requires you to spend the savings within the plan year, or roll-over a limited amount to the following year. When choosing to contribute, be sure to budget your out of pocket medical expenses carefully. The 2018 contribution limit is $2,650.
Health Savings Accounts (HSAs) may also be an option if you’re electing a high deductible health plan. Like FSAs, you can contribute pre-tax and receive tax-free withdrawals for medical expenses, however, HSAs don’t have a ‘use-it-or-lose-it’ requirement. If your cash flow allows, it may even make sense to invest the HSA given it’s tax-free growth. The 2018 HSA contribution limits are $3,450 for individuals, and $6,900 for those with family coverage.
Childcare
There’s also the Dependent Care FSA for children age 12 and under, or another dependent who cannot physically or mentally care for themselves. Like the Medical FSA, this allows you to contribute pre-tax dollars and withdraw tax-free to pay day care expenses. The Dependent Care FSA also has a ‘use-it-or-lose-it’ requirement. The 2018 annual contribution limit is $5,000 for each family, so be sure to coordinate with your spouse if you’re both contributing.
Legal Insurance Plans
Many large employers, including some automotive manufacturers, health systems, and universities offer legal insurance plans. Popular plans locally are through ARAG and Hyatt, and are paid via payroll deduction. While easily overlooked, using a legal insurance plan can save you thousands when it comes time to update or even establish an estate plan, including your will, a trust, and powers of attorney.
Life Insurance
Group life insurance is often offered as an employee benefit. While it typically makes sense to have insurance separate from your employment, group term life is an option if health reasons make it difficult or costly to secure outside coverage. Many employers often offer life insurance coverage you can elect for your spouse as well, so it’s worth reviewing if your spouse has difficulty securing coverage themselves.
Retirement
While most employers allow you to adjust your savings throughout the year, open-enrollment is an excellent time to review your retirement savings, including how much you’re saving and where it is invested. Many providers now offer Roth 401(k) or Roth 403(b) style accounts, which are taxed when you contribute, but are eligible for tax-free withdrawals in retirement. Given recent changes in the tax code, adding Roth savings may make sense, as the individual tax cuts are set to expire in 2025. You should discuss which savings strategy fits your situation by talking to an advisor.
There are important decisions to make at open enrollment time. Be it planning for your medical costs or an estate plan update, to reviewing your retirement savings plan, these decisions can have significant impact on both your short- and long-term financial success. Consider discussing these decisions with a competent financial advisor to ensure you’re getting the most out of open enrollment.
If you work at the University of Michigan, check out our Benefits Roadmap to learn more about the decisions you have to make this fall.
