Many employers offer an open enrollment period in the fall. What is open enrollment and why does it matter? Open enrollment is the time of year you get to start, stop, or make changes to your health care plans for the following year. Generally, this enrollment period applies to the health, dental, vision, life, and disability insurance plans your employer offers. What ever the date is, take a good look at options as your choices can affect your taxes later.
Let’s talk about some of your potential choices:
1. Flexible Spending Account (FSA). The FSA comes in a few flavors – medical and dependent care. The FSA allows you to put away pre-tax money in the account from your paycheck. This must be spent during the year on qualifying expenses and has a limit every year. If you are paying for child care for children younger than 14, this is easy to fund for dependent care and to fully use. If you and your family have medical costs every year, look at what those might be and fund the FSA. The interesting thing about this account is even if you have the expense in March, you can use up to the amount you would fund by December. If your employer offers this type of plan, consider how you may be able to utilize it to your benefit.
2. Health Savings Account (HSA). Not all employers offer this option but if yours does you will want to consider whether or not you are a good candidate. The HSA requires enrollment into a high deductible health insurance plan (HDHP). This option is not appropriate for everyone. If you determine that it is suitable for you and your family, you can fund this account from your paycheck and/or bank account and it is fully tax deductible. In addition, the account grows tax free and withdrawals for health- related expenses are tax free. Triple tax free! In addition, the funds do not have to be used in a calendar year and are available to you and your family in later years – even in retirement.
Be aware that you cannot use funds from the HSA and the FSA to pay for the same expense, so you will need to carefully track your use.
If you miss making changes during open enrollment, there are “qualifying events” that allow you to update your choices. Among these include getting married or divorced, having or adopting a child and sometimes change of address. Be sure to look out for communications from your employer regarding your open enrollment period so that you can maximize the value of your total benefits package.