9 tips to make the most of your employee benefits
Every year from October to Thanksgiving, company employees can make changes to their employee benefits. The enrollment period is the one time per year when employees can make changes to nearly every aspect of their benefit programs. With recent inflation making everything more expensive, these benefit programs may be able to help you save money. Here are seven tips to consider when electing benefits during open enrollment:
1. Attend the open enrollment meeting
Whether in-person or virtual, live or recorded, attending the open enrollment meeting at your company allows you to learn about your company’s benefit plan. When else are you going to make the time for that? Yes, you are busy at work and have got meetings and deadlines, but this is about you. Invest in your well-being and get benefits that will help you by learning about your options. Besides, it is one of the best places and times to ask questions about your benefits.
2. Compare the costs of your benefits versus buying the benefits outside of your employer plan.
Many employers offer health, life and auto insurance to employees at discounted rates. Often your employer is able to negotiate a lower rate for you because they are bringing a lot of potential customers to the insurance company or other provider. Insurers will often discount their rates because they don’t have to spend a lot on marketing because they have direct access to a large number of employees. However, cost is just one aspect. Be sure you are working with a good quality provider that is known for good customer service, too. Cheap doesn’t matter as much if you have a hard time reaching the company when you need them.
3. Set a time to review your enrollment package—especially health insurance
One of the most important employee benefits is health insurance. If you are not well, you may not be able to work, which can a substantial impact on your finances. But picking the lowest cost option is not always the best option. It might seem fine if you are healthy today but that can change, especially if you are older when more health issues can crop up. If you are married and both of your employers offer health insurance, compare plans.
Why is health insurance so important? Just one uncovered hospitalization can easily cost over $20,000 in Massachusetts.[1] When you are young it is mostly accidents that can send you to the hospital. When you are older, it is more likely that conditions associated with aging can send you there. Either way, hospitalization or diagnosis of a serious condition can lead to costly—and sometimes uncovered—bills quickly. Comparing plans and getting the right one can help you avoid a financial and health calamity.
4. Confirm your beneficiary designations
If something happens to you, your employer needs to know who to send the life insurance or 401(k) check to. This is usually serious money that your family will be depending on. Keeping your beneficiary designation up to date is especially important if you have had a recent life change such as marriage, divorce, or birth of a child. It is easy to update as most can be done online.
5. Review flexible spending accounts (FSAs)
Employees can use FSAs to lower their taxable income, therefore increasing their take home pay. The only times you can sign up are when you are first hired or during benefits open enrollment. So, each year you should review how much in qualifying expenses you will have. Because most of the money you contribute to an FSA is “use it or lose it,” selecting the right amount each year is important. In 2025 the maximum amount is $3,300.
6. Consider Health savings accounts (HSAs)
HSAs allow you to put money away today to help cover future medical expenses. Money goes into the HSA on a pre-tax basis and can be withdrawn for qualified medical expenses, tax free. However, HSAs must be paired with a qualifying High Deductible Health Plan. These plans are typically the cheapest offered by an employer but require the employee to cover a much larger share of health care expenses than other plan types. These plans can be attractive to young, healthy workers but less attractive to older workers or those with significant health care needs. If an HSA makes sense, you can put away up to $4,300 (individual) or $8,550 (families) in 2025 to cover medical expenses now or in retirement.
7. Increase your 401(k) contribution by 1%
With the costs of everything going up, it can be hard to put aside a few more dollars for retirement, especially if retirement is years away. But retirement will arrive before you know it and a one percent of pay increase is pretty manageable for most people. Then, keep increasing it until you max out. In 2024 the salary deferral limit for 401(k)s and 403(b)s is $23,000. If you are turning age 50 in 2024, you’ll be able to put in an additional “catch up” amount of $7,000 for a combined total of $30,000. I mention increasing your 401(k) deferrals because it is one of the few tax deductions that is not reduced or eliminated for higher income taxpayers.
8. Deferred compensation plans
Some employers offer deferred compensation plans to their employees. If you are a high income earner and feel like you got killed with taxes last year, a deferred comp plan can be a way for you to reduce your taxable income next year. Contributions pre-tax but are fully taxed when you withdraw funds at retirement or if you terminate employment. This last part is important because if you are high income earner and change to a new high income job, you may have to take distributions from your deferred comp plan at the same time that you are still earning a high income. In addition, you must decide how much to contribute BEFORE the calendar year begins. This can lock you into contributions and reduce flexibility if your circumstances change next year. In sum, careful planning is required before making contributions to a deferred comp plan.
9. Other things that are really important
Adjust tax withholding - A lot of taxpayers were surprised with large tax bills a few years ago because they had big capital gains that resulted in large tax bills. With the US stock market up strongly so far in 2024, this may be another big year for capital gains. While predicting your capital gains can be tricky, salaried employees with steady income and few other sources of income can usually predict their income for next year. To make sure you have the right amount of tax withheld from your paycheck, fill out a new W-4 and submit to your employer. If you do that now, you have a good chance that you won’t owe too much at tax time.
Update home address – If you moved recently, be sure that your employer and all of your benefits providers have your new address (and phone number and new email, if applicable). Your W-2 and correspondence is going to be sent to the address they have on file for you. Don’t wait until you are searching for the form. Make sure your info is updated with them now.
Check emergency contacts – We hope you or your employer never need to use this information but if they do, be sure that they have the most up to date contacts. If you have moved, married, divorced or had other changes, you should check these contacts to be sure they are current.
This is a partial list of important items to review during your employer’s open enrollment period. If you have questions about your employee benefits, give me a call. I’m here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
Lyman@PlanWithFPS.com
617-653-3303
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[1] Source: Massachusetts Health Policy Commission 2021 Annual Health Care Cost Trends Report, https://www.mass.gov/doc/2021-health-care-cost-trends-report-executive-summary/download
©2024 by Financial Planning Solutions, LLC (FPS), a Registered Investment Advisor. Reprinting or redistribution only by permission. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.
[1] Source: Massachusetts Health Policy Commission 2021 Annual Health Care Cost Trends Report, https://www.mass.gov/doc/2021-health-care-cost-trends-report-executive-summary/download