5 Tips for Open Enrollment | Employee Benefits | CommunityAmerica
It’s the most wonderful time of the year—Open Enrollment for employee benefits. When it comes to this season, there are a lot of important decisions to be made and most of them are permanent until next year. Here are some tips you should take into account when electing.
1. Find your own.
Especially when it comes to health insurance, one of your biggest expenses can also be one of your biggest liabilities. Employer-sponsored plans and costs vary greatly but if your employer seems to be passing on most of those costs on to you, consider getting your own individual or family insurance. Apply for an individual or family plan at healthcare.gov, call an insurance company directly or locate an insurance agent to help you search for a plan that could fit your needs better than your company’s options. You can do the same for dental insurance.
2. Max the match.
For other benefits, like your 401(k), at the very least, take advantage of all the free money you can. Contribute enough to max out the employer match. Most employers use a simple formula—for instance, for every $1 an employee contributes, the company will also contribute $1 up to a certain percentage of your income (vesting usually applies). Because employer 401(k) matching has been around a while, it is probably one of the most overlooked benefits some of us get. Don’t take it for granted, take advantage!
3. Roth or Regular?
Speaking of retirement plans, many employers now offer the ability to elect either the Roth (after-tax) contribution option or the Regular (pre-tax) contribution option. Which one should you elect? The Roth option is usually utilized by people who plan to be in a higher tax bracket at retirement than right now, because withdrawals will be tax-free at that point. For those who plan to be in a lower tax bracket at retirement, the Regular pre-tax option is generally preferred so you take the tax break now and pay lower taxes later. As it is tough to predict your future state of tax brackets, a safe compromise could be to split your contributions down the middle—put half in one and half in the other.
4. Life that stays with you.
It’s common for employers to graciously offer their employees life insurance, plus provide the ability for employees to “buy-up” and get more coverage at a group discount. We absolutely recommend taking advantage of what is in front of you, but our advice doesn’t end there. We suggest you find out if your life insurance benefit is “portable”, meaning can you take it with you if you are no longer employed there? If it is not—and most aren’t—we recommend supplementing your policy with non-group life insurance, which can be obtained through a life insurance agent. How much you need depends on many factors, but we recommend having enough so your family can cover their mortgage, utilities and groceries when you are gone. While usually not quite as inexpensive as employer-sponsored coverage, it is still very affordable and doesn’t care where you work!
5. One or a Zero?
If you have worked as a full-time employee, you have elected a withholding number on your W-4. Most people do it annually. The lower the number, the more taxes will be withheld from your paycheck. When you file your taxes, if you withheld too little, you will owe money to the IRS. If you withheld too much, you will get a refund. Why does withholding matter for benefits season? Withholding can be a powerful tool in personal financial management.
There are two schools of thought on this. The first is you never want to make a withholding election that allows the government to hold your money and earn interest on it until they give it back in the form of a refund at the end of the year. This is true, if you have the discipline to save this money or invest it. The second school of thought, however, applies to most other people who struggle to find this consistent saving discipline. If you are in the latter group, it might be wise to elect one withholding lower than normal and force yourself to save by letting the government act as your personal savings account. Your paycheck will be slightly less but you’ll have a nice “surprise” refund in April that will make it all worthwhile.
Open enrollment can seem like more of a task than a benefit, but it’s absolutely necessary. Train your brain to see this time as an opportunity to revisit your financial future for the next 12 months. If you have specific questions, one of our financial advisors or insurance agents would be happy to help.
Ron Yount is a CERTIFIED FINANCIAL PLANNER™ professional with CommunityAmerica Financial Solutions and works primarily out of the Shoal Creek Branch. To set up a complimentary appointment with Ron about your open enrollment questions or any other financial planning topic, please click the button below.