What I Did During Open Enrollment This Year

Well, it’s that time of year again. No, I don’t mean the holidays. I’m talking about annual open enrollment, the limited period when you get to make your benefits selection at work for the upcoming year.

One of the things we do at Financial Finesse is help people make the most of their benefits so you might be wondering how we try make the most of our own. Well, wonder no more since I’ll show you how I made my benefits selections this year. (Just remember that I’m 36 yrs old, relatively healthy, and have no spouse or kids. Your mileage may vary.)

Health Insurance

Our first decision was which health insurance plan to enroll in. If I stay in our high deductible plan, I won’t have to pay any premiums and my employer would contribute $2,500 pre-tax to my HSA. I could then contribute another $850 pre-tax (including payroll taxes). The downside is that I’d have to pay $3,500 out-of-pocket (the deductible) before the insurance would kick in and then I’d be responsible for 20% (the co-insurance) of additional costs up to a total out-of-pocket maximum of $6,250 (more if I go out of network).

If I decide to enroll in the next lowest cost plan, the HMO, I would only have to pay small co-payments rather than the large deductible and co-insurance. My choices of doctors and facilities would be more limited in an HMO but I’m not particularly loyal to any medical providers. The bigger problem is that I’d have to pay about $15 per pay period or $390 a year. Add that to the $2,500 HSA contribution I would give up and the over $238 I would save in taxes from my HSA contribution and I would need to spend $3,128 more out-of-pocket in the high-deductible plan just to break even.

The math only gets worse if I were to choose one of the more expensive PPO options. I don’t typically have a lot of health care expenses so the high-deductible plan makes the most sense for me. I particularly like having my HSA funded. I don’t even use it for my out-of-pocket medical expenses since I’d rather invest it and let it grow to be tax-free for health care expenses in retirement. (I can also use it for any purpose without penalty once I turn 65.)

Estate Planning

I thought I had selected beneficiaries for my HSA but our new benefits system didn’t have them in there so I added them again. I put my brother as beneficiary on my HSA since the proceeds will be fully taxable and his tax bracket is currently lower than my parents’, who are the secondary beneficiary. The same is true for my 401(k) with the additional benefit that my brother will be able to spread the required minimum distributions (which are taxable) out over a longer time period since they’re based on life expectancy and his is greater than my parents’.

I also had the opportunity to add beneficiaries to my company-paid life insurance, which prevents the payout from otherwise going through the time and cost of probate. Since the death benefits aren’t taxable, I made my parents primary beneficiaries and my brother secondary. After all, they raised me so I figure the least I can do is give them first dibs on the money. I didn’t buy any additional  life insurance though since no one is dependent on me (at least not financially).

FSA

The easiest decision was not funding a dependent care FSA since I have no dependents to care for. The toughest decision was funding the health care FSA because unlike the HSA, you can only roll over $500 that you don’t use. The rest you lose. In addition, I can only contribute to a “limited purpose” FSA for just dental and vision expenses since I contribute to an HSA.

According to this blog post, I recently spent $817 on dental and vision expenses in one year, which would have saved me $280 if funded through the FSA, and I don’t want to make that same mistake again. I have no idea if my expenses will be more or less than that next year but considering that dental and vision expenses are pretty routine, it’s as good a guess as any so I decided to contribute $817 to my FSA for next year. If my expenses end up being less, at least I can roll over up to $500. (I doubt I’ll spend less than $317.) That or I may have to buy a new pair of glasses and stock up on contact lenses.

Of course your benefits, situation, and goals may be very different. You may have more health care expenses and prefer a more comprehensive health insurance plan. You may have a spouse to leave your assets to (a particular benefit for a retirement plan since they can roll it into their own IRA and delay taking withdrawals until age 70 ½) and dependents to purchase more life insurance for and perhaps fund a dependent care FSA for. The important thing is that you think through your choices and consult with a qualified financial planner if necessary. After all, if you make a mistake, you might need to wait until the next open enrollment period to fix it.

 

 

 

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