In this week’s blog, Financial Planner Kate Welker, CFP® defines top benefit terms to help demystify some of the confusing benefit terms.
In the next few weeks you may open your mail or email to see notices regarding open enrollment season through your employer. Open enrollment is a period of time you can make changes to your employee benefit options that are normally restricted. This is also a great time to review your entire benefits package and make any other adjustments as well. Let’s walk through a few options you may be looking at.
Health Insurance is the main thing most people think about during open enrollment. Compare the components of the plans offered and look beyond the premium. You will want to compare the deductibles, co-pays, and which providers are in-network. Also take the time to review the prescription plans against your current medications to see how those are covered.
The FSA or Flexible Spending Account is the next thing to consider. A flexible spending account allows you to contribute pre-tax dollars to cover out of pocket medical expenses including co-pays, medical supplies, dental, and vision expenses. If your benefits include access to an FSA this is a way to lower your taxable income and pay for expenses you would incur anyways. You will have to decide how much to contribute each pay period. Be sure to review the plan terms and not to contribute too much. If you have a balance at the end of the year the plan will allow you to either roll over $500 or spend it within a grace period.
The HSA or Health Savings Account is an option to consider if you have a high deductible health plan. To qualify you must have a deductible of at least $1,350 for an individual and $2,700 for a family plan. The contribution limits are much higher and depend on the type of insurance and other benefits you have. Like an FSA this account is used to cover out of pocket medical expenses and is an income tax deduction. Unlike an FSA, an HSA balance will roll forward year to year and the growth on the account also grows tax-free. Be sure to look for an employer contribution that may be offered and take full advantage of that contribution.
Dependent Care FSAs are like the medical FSAs, but for childcare. This includes daycare, preschool, summer day camp, and after school programs. Also included is adult daycare. If an adult is your qualifying tax dependent and they require care while you work this is an eligible expense. With a DCFSA you are able to contribute up to $5,000 pre-tax.. Some employers also offer a matching contribution into these accounts.
Other Benefits may be available to update at this time as well. Reach out to your HR department to ask about your benefits package and see if there is an option you were not aware of. Some employers offer additional insurances like pet insurance or unique legal services.
Block out some time for yourself to be able to really read the information you are given and consider your options. Look at the bigger picture benefits like tax savings, lower taxable income reported, employer matches, and the satisfaction that you are getting the most benefit out of what is offered.