What to Look For in Open Enrollment This Year

The open enrollment period for workplace benefits is beginning soon. If you haven't spent much time reviewing your insurance, healthcare and other benefits in the past, amid the coronavirus pandemic, now is the time to really pay attention. Here are a few things to look out for:

1. Health Insurance and Health Savings Accounts. If your employer offers a high deductible health plan (HDHP), you may want to consider the approach of combining this type of coverage with an Health Savings Account (HSA). HDHPs have a higher annual deductibles than typical health plans, with lower monthly premiums. Participating in a HDHP makes you eligible to contribute up to $3,550 each year into an HSA, which is a tax-free savings account that you can use to pay for medical expenses. Think of an HSA like a healthcare IRA, but even better: in an IRA, your contributions are pre-tax, but when you spend the money in retirement, you will pay income tax on those distributions. In an HSA, your contributions and withdrawals are tax-free (as long as you're using withdrawals for medical expenses). Even better, once you reach a certain dollar threshold in your HSA, you can invest your savings, and benefit from compound growth over time. And some employers will make an annual contribution on your behalf as long as you report an annual physical. This is a huge opportunity that too many employees miss.
2. Life and Disability Insurance. For many employees, their situation can change significantly from one year to the next. If you've gotten married, had a child, or taken on significant debt, you want to pay attention to your insurance benefits. Does your workplace offer a policy for life and/or disability insurance? How much coverage is included? Would it be enough for a partner to be able to cover a mortgage or rent, or to take care of childcare or education expenses? If not, you may want to consider an individual term life policy.
3. 401K Contributions. You don't have to wait until open enrollment to review and update your retirement plan paycheck deductions, and how your 401K is invested. One thing to look for this year is whether your employer offers a Roth 401K. In a traditional 401K, your money is contributed pre-income tax, but in retirement, will be subject to income tax on the withdrawals. A Roth 401K is the opposite - contributions are made post-tax, but distributions will be tax free. Considering that the value of your 401K will (hopefully) be significantly higher in 20 years than it is today, wouldn't you rather pay taxes on the smaller amount? There are other benefits, too. With a traditional 401K, after you turn 72 the IRS will begin to dictate the minimum amount you can withdraw each year (again, which will be taxed). With a Roth 401K, that amount is up to you, providing greater flexibility. And whereas a Roth IRA has income limitations that might disqualify you from making contributions, there is no income limitation for contributing to a Roth 401K.

Everyone's situation is unique, and if you'd like help reviewing the benefits that you're offered, I'm here to help.