By: Sean Gallagher, CFP®
As the end of the year approaches, it’s time for one of the most critical financial planning opportunities for employees: open enrollment. Whether you’re re-evaluating your benefits or making selections for the first time, open enrollment is a golden opportunity to make choices that align with your financial goals and needs. With the right approach, you can maximize the value of your benefits package, reduce out-of-pocket expenses, and even save for the future. Here’s what you need to know to make the most of open enrollment this year.
Understanding Open Enrollment
Open enrollment is a designated period when employees can review and change their employer-sponsored benefits, such as health insurance, retirement savings, and other optional coverages. For most companies, this happens once a year, typically in the fall, with changes taking effect in the new year. Your choices during this period are locked in for the following year unless you experience a qualifying life event, like marriage or the birth of a child.
Let’s break down some of the most common benefits offered during open enrollment and explore how you can make the most of them.
1. Health Insurance
Choosing your health insurance plan is one of the most significant decisions you’ll make during open enrollment. Employers often offer several plan options, such as Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), High Deductible Health Plans (HDHPs), and sometimes exclusive networks or point-of-service plans.
Consider Your Healthcare Needs: Review your past healthcare usage, such as doctor visits, prescriptions, and any planned procedures, to determine the type of coverage that will be most cost-effective.
Compare Costs: Look beyond the monthly premiums. Evaluate deductibles, co-pays, and out-of-pocket maximums, as these can vary significantly from plan to plan.
Evaluate the Network: Confirm whether your preferred healthcare providers are in-network for the plans you are considering, as out-of-network care is usually more expensive.
For individuals who don’t anticipate high medical expenses, a High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA) can be an excellent option to reduce premiums while taking advantage of tax benefits.
2. Health Savings Account (HSA) and Flexible Spending Account (FSA)
HSAs and FSAs offer tax-advantaged ways to save for healthcare expenses, but they differ significantly.
HSA: Available only to those with an HDHP, an HSA allows you to contribute pre-tax dollars that can be used for qualified medical expenses. Funds in an HSA roll over yearly, making it an excellent tool for building long-term savings for healthcare costs, even into retirement.
FSA: An FSA is another pre-tax savings option, but funds do not roll over fully (although some plans offer a small carryover or grace period). FSAs are typically used for predictable medical expenses like prescriptions, copayments, and dental or vision care. Some employer plans also provide dependent care FSAs for certain childcare expenses.
Consider maxing out these accounts if possible. For HSAs, this can be particularly advantageous, as it functions similarly to an IRA with tax-free withdrawals for medical expenses, and any unused funds remain available indefinitely.
3. Retirement Savings Plans
During open enrollment, you might have the opportunity to adjust your contributions to employer-sponsored retirement plans, such as a 401(k), 403(b), or 457(b) plan.
Review Employer Match: If your employer offers a matching contribution, consider increasing your contribution to take full advantage of this “free money.” Failing to meet the match is leaving money on the table.
Roth vs. Traditional Contributions: Many employers offer the option of contributing to a Roth 401(k), which is funded with after-tax dollars but allows tax-free withdrawals in retirement. This option may be beneficial, depending on your current tax situation and expected retirement tax bracket.
Consider Contribution Increases: If you receive a raise or expect lower expenses, increasing your contribution rate can help accelerate your retirement savings.
Although typically available to adjust throughout the year, be sure also to review the underlying investments in these accounts to confirm they align with your long-term financial goals.
4. Life and Disability Insurance
While it may not be top of mind, open enrollment is also a great time to review life and disability insurance options.
Life Insurance: Many employers offer low or no-cost group life insurance. Consider whether the coverage is sufficient for your needs or opt for additional coverage through your employer’s supplemental life insurance or an individual policy.
Disability Insurance: Disability insurance protects your income if you’re unable to work due to illness or injury. Review the employer-sponsored plans for short-term and long-term disability insurance and consider enrolling if it isn’t already part of your coverage. Disability coverage is often one of the most overlooked but crucial types of insurance.
5. Voluntary Benefits
Employers may also offer voluntary benefits such as dental, vision, legal assistance, or pet insurance, which can be convenient and cost-effective options if they align with your needs.
Dental and Vision Insurance: If you anticipate dental or vision expenses, such as regular check-ups, glasses, or orthodontic care, these plans can help manage costs.
Other Voluntary Benefits: Legal assistance or identity theft protection can provide peace of mind, especially if you’re facing legal matters or want extra security for your personal data.
Final Thoughts
As you navigate open enrollment, remember to review your benefits package in the context of your overall financial plan. Reassessing your selections each year ensures that your choices align with changes in your life and financial goals. Take the time to review all available options, consider consulting with your HIGHLAND team, and don’t hesitate to ask your HR representative for additional information or clarification.
By taking a proactive approach during open enrollment, you can tailor your benefits package to support your immediate needs and long-term financial goals. With the proper planning, you’ll be better prepared to navigate healthcare costs, save for retirement, and protect your financial future.
Sean Gallagher is a CERTIFIED FINANCIAL PLANNER™ at HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Sean graduated from Virginia Tech’s financial planning program in 2018 and successfully passed the CFP® national exam in 2019. As a Financial Planner at HIGHLAND Financial Advisors, Sean works on developing comprehensive financial plans and investment management for all clients.