It's open enrollment time for your employee benefits. Before you simply renew the same benefits you chose last year, ask yourself: Are you taking full advantage of your employee benefits? You might not be. One of the biggest mistakes people make during open enrollment is focusing only on health insurance. But if you do a deeper dive, you could uncover opportunities to save money.
Examples of employee benefits that saved me money.
Two years ago, I did some work on my teeth with aligners. I knew the cost would be $2,700. So, I planned ahead and put that money into my flexible spending account (FSA), which allowed me to pay for this tax-free. Here's how that works. If you paid 29.65% for federal, state, local, and FICA taxes, that means you would have saved a little over $1,1001 with this move. A lot of people would have just paid out-of-pocket (after-taxes) and missed an opportunity to save a chunk of change.
Another example: Some employers offer access to a legal plan, which covers personal legal help for your family—and could even include your parents. When I enrolled in my legal plan, I discovered that my parents were covered for estate planning documents. While it's a tough conversation to have with your parents, having access to pre-paid legal services for them made the conversation a little easier, and it prompted them to finally get moving. They met with an attorney and got their estate planning paperwork in order.
Ideas on how to make the most of your employee benefits.
Health Insurance: Review this every year. Many employers offer a choice between a traditional copay plan and a qualified high deductible health plan with a health savings account (HSA). Sometimes people prefer the copay plan because out-of-pocket-costs may be more predictable and cost less. You show up, you pay $25. The challenge is that your monthly premiums might be higher than for a high deductible plan.
If you are generally healthy and want to save for future health care costs, then you could be better off with a high deductible plan. But, if you have a bigger family or a chronic condition where you spend a lot on health care expenses throughout the year, the copay plan could be a better choice for you.
Health savings accounts have a unique triple tax advantage. The contributions are usually funded on a pretax basis, earnings are tax-free, and withdrawals are tax-free when used for qualified medical expenses. You don't have to hold the money in cash (beyond the HSA custodian's minimum requirement); you can invest your HSA funds to help build a nest egg for future health expenses. You own your HSA. It is not a "use it or lose it" situation—and you take it with you—even if you leave your employer.
As you review your choices, be sure to coordinate with your spouse or partner. If you have a choice between employer plans, examine them carefully. All this research takes some effort, but it's worth it.
Check to see if your employee package includes:
Flexible spending accounts: FSAs allow you to pay for many out-of-pocket medical expenses with tax-free dollars, just like I did for my aligners. You can only use FSA funds in the current year; this money does not roll over. So, it takes a little bit of planning. If you know your child is getting braces, or there is another procedure coming up, you can pay for it through your FSA and reduce your taxable income for the year. Do you have kids who are under 12? Consider using a dependent care flexible savings account, if available. This can be used for daycare, after-school care or even summer camp costs. You deposit pretax money into your FSA and then use it to pay for eligible expenses.
Life Insurance: Employers often offer basic coverage that's free or low-cost. However, the basic coverage could be insufficient, especially if you have a partner or children who depend on you financially. In that case, consider a supplemental policy. If you have dependents and are looking to replace your income, term insurance is generally considered the most cost-effective compared to permanent life (though there are some exceptions like for special needs planning).
Disability: It's more likely than you might think. One in four of today's 20-year-olds will become disabled and unable to work for at least a year before they reach retirement age, according to the Social Security Administration. What would happen if you couldn't work for a period of time? Would you have to spend through your cash and investments? If you are working, you should have disability insurance to protect your earning power and your ability to save. Sign up for your company's policy. Then, if that's not enough, consider purchasing an additional private disability policy to supplement your coverage within your budget.
Legal Plan: As I mentioned before, your employer could also offer basic personal legal services for a low monthly cost.
Pet insurance: If you have a dog or cat, this is a big deal. It can take the bite out of unexpected medical costs for your pet.
Employee Assistance Program: Our mental health is important. This program typically provides you access to talk to a qualified counselor for a set number of sessions for free.
Commuter Tax Savings: The IRS allows pretax deductions up to $300 per month for eligible parking, mass transit, and other commuter expenses. If you pay for parking, a bus, or a train, why not pay for it tax-free?
Knowledge is power.
It's important to look at your benefits early—don't wait until the last minute—so you can make the best decision for you. You snooze, you lose, and we don't want that. Reading through your benefits package could give you the knowledge and power to put more money back in your pocket. And that, my friends, gives you more money to spend (or save) on something you really care about.