October marks the start for many companies of open season for employees' workplace benefits, many of which provide workers some nice tax savings. It's also a good month to make other tax-related moves.
It's time to turn our attention to health care again. This time, though, it's not medical insurance via the Affordable Care Act/Obamacare.
Instead, October marks the beginning of open enrollment season for workplace-provided benefits at companies across the country.
Decide now for next year: Open enrollment periods vary from company to company. Most run from two to four weeks for workers to evaluate their current benefits and assess changes in their lives that might necessitate making different benefit choices.
The paperwork filled out during fall open enrollments and submitted to employers typically triggers changes that take effect on Jan. 1 for calendar-year benefit plans. If your workplace operates on a different fiscal year, these considerations still apply, just shifted to your particular benefits year.
Regardless of when your company holds open enrollment, don't waste time once it starts.
Weeks may seem like plenty of time to make these important decisions, but you could have a lot of benefits to examine. You don't want to get down to the final days of open enrollment and find yourself making hurried choices that could cost you both paycheck and tax dollars.
Myriad employer-provided options: The typical workplace benefits offered during open enrollment are health, dental and life insurance options.
Most companies also have tax-saving employee-funded accounts to help cover some child care, transportation and out-of-pocket medical costs. The most common medical account are flexible spending accounts, or FSAs, and health savings accounts, or HSAs.
Those basics, however, are increasingly supplemented by other workplace benefits as companies get creative in order to attract and retain employees. They offer physical wellness programs tied to health coverage. They also provide financial wellness programs, such as investment and retirement planning.
Others offer continued education assistance. More are now providing workers help in repaying student loans they acquired before joining the company.
Some offer legal services. Even pet insurance options are showing up during open enrollment.
Some benefits are fully paid by the employer. Some are employee-paid through salary deferral or a section 125 cafeteria plan. In other cases, the costs are shared by workers and their bosses.
Here are 5 tips to help you make the best tax and paycheck decisions as you sort through your open enrollment materials.
1. Carefully review your current health care coverage.
Even if your health insurance worked well for you in the past, make sure there aren't changes in the coming year. Is the price essentially the same? What about covered benefits? Are your doctors still participating in the plan? Are your prescriptions still covered? Even if they are, have coverage and copay amounts increased? Any changes could mean you need to look at other options being offered.
2. Check out high deductible plan options.
If your employer offers a high-deductible health care plan, run the numbers. The lower premiums of these plans could be better for your personal medical and financial situation, especially if you are young and healthy. If a high deductible is for you, you'll want to open and fund as fully as possible an associated health savings account, or HSA.
The money you put tax-free into an HSA grows tax-free. Then you can make tax-free withdrawals for qualified medical expenses. For 2018, you can put up to $3,450 into your HSA if you're a single taxpayer or $6,900 if the coverage is for families with high deductible health plans. The limits are adjusted annually for inflation.
Even better, the money that you put into an HSA is totally yours, not your employer's even if it's offered via your workplace, meaning it rolls over from year-to-year and if you change jobs, it still belongs to you.
3. Carefully estimate your healthcare flexible spending account (FSA) needs.
An FSA is separate from an HSA and typically is used by people who get more traditional workplace-provided health coverage. The pre-tax FSA dollars can be used to pay that medical coverage's copays and deductibles. Don't underestimate the tax savings from your contributions, but don't over-contribute. In 2017, you could put up to $2,600 into an FSA. The amount is adjusted annually for inflation, with the IRS expected to issue the official 2018 figure sometime this month.
Remember that FSAs still are a use-or-lose arrangement, meaning if you don't spend the account money on allowable medical expenses, it goes back to your boss. Some companies do offer a grace period until March 15 of the next year to use the money. Others allow for roll over of up to $500 into next year's FSA. Make sure you know your company's options on excess amounts. This will help you make choices that won't waste your contributions.
And again, estimate your expected medical expenses carefully before deciding on an FSA amount. You can't change it until next open enrollment or a major life change occurs.
4. Talk with your spouse in evaluating benefit options.
If you both work and each has access to similar workplace benefits, understand how they are coordinated and the potential marital limits. This is particularly true if you have children and are looking at a workplace dependent care account. Even though both mom's and dad's workplaces allow them to contribute up to $5,000 in a child care account, the tax code says that working parents' combined contributions to separate childcare spending accounts cannot exceed $5,000. Don't get stuck over contributing to this benefit.
As for healthcare, assess the options each spouse's workplace offers. Will you get lower premiums if you sign up with your lower-earning spouse's healthcare plan? Or will those premium savings be lost if you must pay higher deductibles or copays? Should each spouse sign up separately for his or her own workplace plans? If so, which one should cover the kids? If you go with one spouse's medical coverage for the full family, is that spouse's job and therefore insurance the more secure one?
5. Review your 401(k) options.
These employee-contribution retirement plans generally aren't part of open enrollment because you usually can change your 401(k) choices on a payroll period basis. But since you're looking at all your other workplace benefits, now is a good time to see where you stand here.
Do you want to open a plan? If so, how much can you afford to put into the 401(k)? Note the tax savings these pre-tax contributions can provide, as well as how much of a match your employer offers. Does your company offer a tax-free Roth 401(k) as well as a traditional tax-deferred 401(k) option? It might be worth going Roth so that you won't owe taxes when you take distributions in retirement.
Other tax actions to consider during the month that effectively ushers in fall include filing your 2016 return if you got an extension, preparing for the lingering hurricane season and, if you itemize, setting up a bunching strategy.
You can find more about these and other October Tax Moves under the bright red heading of the same name in the ol' blog's right column.
Once you complete your open season benefits examination, check out those tax actions to see which ones could save you some tax dollars.
You also might find these items of interest:
- Some in Congress want FSA use-of-lose rule eliminated
- Comparing tax-favored HSA, HRA & FSA medical options
- Millennials' participation in tax-favored workplace retirement plans improves, but still lags other generations