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5 workplace benefits questions to answer during open enrollment season

Workplace benefits open enrollment season choice decisions

Millions of Americans rely on their workplace benefits to cover then health care and other needs. Most of them also are paying even more attention to those job-based benefits this year in light of the persistent COVID-19 pandemic.

Medical insurance is a top priority. But other benefits also are getting added attention during this annual fall period, during which many U.S. companies allow workers to enroll in or change their benefits for the coming coverage year.

Many of the office-based benefits also offer some tax advantages. Here are five questions with an Internal Revenue Service-inspired perspective to ask yourself as you evaluate your company's perks.

1. Will a high-deductible health care plan work for you?
Much of my medical coverage throughout my life has been from workplace policies. Whether we got the coverage from my company or the hubby's employer, the basic coverage options tended to fit our financial and health needs best. But some folks find that they'd be just fine with a high-deductible health plan, often referred by the acronym HDHP.

The major appeal of an HDHP is that it has lower per-paycheck premiums in exchange for the higher deductible in its name. For 2022, a medical insurance policy qualifies as a high-deductible plan if it has a minimum annual deductible of $1,400 for individual coverage or $2,800 for family coverage. That's a workable trade-off for many young and healthy employees.

If you do opt this open enrollment season for HDHP coverage, you'll also want to check into establishing an associated health savings account, or HSA. You put money into the HSA, where it grows tax-free. Then you can make tax-free withdrawals for qualified medical expenses. For 2022, you can put up to $3,650 into your HSA if you're a single taxpayer or $7,300 if the coverage is for families with high deductible health plans. There's also a $1,000 add-on for 55 or older HDHP plan owners.

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.

2. Would you benefit from a healthcare flexible spending account?
Flexible spending accounts, or FSAs, are common benefits for workers who opt for the more traditional workplace-provided health coverage. When you choose this option, a preset amount goes from your paycheck into the FSA each payday before taxes are figured.

While you'll some of your paycheck to the money going into the FSA, your taxes will be reduced a bit so the bottom-line pay period change tends to be nominal. The tax benefits really come in handy when you get to use those pre-tax dollars to cover eligible medical expenses, including copays and deductibles.

Tax law for 2021 allowed for maximum FSA contributions up to $2,700. The cap is adjusted each year for inflation. The IRS should soon announce the 2022 tax year FSA limits.

Regardless of that amount, deciding how much to put into an FSA requires some tax and medical prognostication. You don't want to underestimate the amount, but neither do you want to over-contribute. Why the need for the benefits math? Even with some allowances to let you use up your FSA funds, such as rollovers to the next benefits year or grace periods, the accounts still are use-or-lose arrangements. Any unspent amounts in an FSA go back to your boss.

3. Could a child care spending account come in handy?
Now that many businesses are calling employees back to the office, workers are putting the kiddos back into day care. As every parent will attest, this can be an expensive proposition. But if your employer's benefits include a dependent care account, check it out. It's essentially the family related cousin to an FSA. Up to $5,000 can be put into a dependent care FSA.

And as with the medical version, you put pre-tax money into the dependent care FSA to pay for care of your youngster while you're at work. The qualifying costs that can be paid from a dependent care FSA include preschool care, before or after school programs, other private child care costs, and even summer day camp.

4. Does your spouse also get workplace benefits?
If you and your spouse both have jobs that offer workplace benefits, don't make any decisions about either before checking on your better half's job offerings. You need to understand what each package offers, how benefits from the workplaces are coordinated, and know of any potential marital limits. This is particularly true if you have children and are considering a dependent care FSA.

Even though each parent'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. Are you saving enough for your retirement?
How much we'll enjoy our post-work years depends in large part on whether we'll have enough money for the kind of retirement we want. A workplace 401(k) plan can help. If you work for a government agency or nonprofit, you'll likely be offered a 403(b) plan.

Regardless of which Internal Revenue Code section number is assigned to the account, these programs allow you to contribute to your golden years via a tax-favored workplace plan. Your employer also can contribute a percentage to your account. Make sure you put in enough to get your company's contribution.

Most companies offer a traditional 401(k) plan, where your money goes in pre-tax and grows tax-deferred. When you eventually take distributions, those amounts are taxed at your ordinary income tax rate. Some businesses, however, also offer Roth 401(k)s, which are funded with your already taxed contributions. The benefit here, as with a Roth IRA, is that qualified withdrawals are tax-free.

Evaluate all the offerings: Workplace retirement contribution plans generally aren't part of open enrollment because you usually can change your 401(k) choices on a payroll period basis. You can up the amount you put in for month when you're feeling flush, then cut back if you see some expenses on the horizon that you'll need to cover.

But since you're looking at all your other workplace benefits during this open enrollment season, it's also a good time to evaluate how you're doing when it comes to retirement savings.

And these are just a few of the benefits companies offer to keep their workers happy. Others include coverage of transportation costs, help in paying higher educational costs and even student loans, and general emergency savings accounts.

Be sure to check out every benefits offering thoroughly. Your decision could save you and your family both day-to-day and tax dollars.

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