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It’s that time of year, when you are confronted by open enrollment nudges from your employer and in some cases, from the government. The choices can be dizzying, so to help you make more informed decisions, let’s break it out into broad categories.
EMPLOYER HEALTH INSURANCE:
For the 153 million Americans who receive their benefits through their employers, a Kaiser Family Foundation survey found that this year annual premiums reached $7,188 for single coverage and $20,576 for family health coverage. That’s up 4 and 5 percent respectively from the previous year, higher than the 2 percent general rate of inflation. While the headline numbers are eye-popping, you probably care more about your contribution. The numbers are smaller, but the increases are significant. The average annual dollar amounts contributed by covered employees for 2019 are $1,242 for single and $6,015 for families, a whopping 25 percent jump since 2014 and 71 percent since 2009!
Of course it doesn’t stop there as the dreaded deductible can add up to significant additional outlays towards the cost of health care. The average deductible among covered workers with a deductible is $1,655, up 36 percent over the past five years and 100 percent over the last ten years.
So what can you do? SHOP AROUND! Yes, it’s tedious, but it could save you money. Start by reviewing your current plan, what you spent this past year; and then try to project what your health care costs will be in the year ahead. Then compare plans and determine what they cover, how much they cost, including co-pays and deductibles and whether your doctors are in the network.
HDHP/HSA: High Deductible Health Plans (HDHPs) offer lower premiums and are paired with tax advantaged Health Savings Accounts (HSAs). Both allow you to set aside pre-tax money to pay for unreimbursed health care costs. If you're generally healthy and want to save for future health care expenses, the HDHP/HSA may be an attractive choice. Or if you're near retirement, it may make sense because the money in the HSA can be used to offset costs of medical care after retirement. However, if you think you might need expensive medical care in the next year and would find it hard to meet a high deductible, it might not be your best option. The IRS has specific contribution and deduction rules about HSA contribution limits, so be sure to check them out.
Flexible Spending Accounts (FSAs) allow you to set aside a projected $2,700 in pre-tax dollars (increases to $2,750 in 2020) to pay unreimbursed medical expenses. These plans are subject to a “use-it-or-lose it” provision, which means that employees often must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. Employers may, if they choose, allow you to carry over up to $500 of unused FSA funds to the following plan year.
Insurance Coverage: The buying power of a big group can mean more affordable rates for life, disability and long term care insurance. Many of these policies are “portable,” which means that you can take them with you, if you leave the company.
MEDICARE:
Open enrollment for the nation’s health care plan for those over age 65 runs from October 15th through December 7th. While most continue whatever coverage they have, they do so at their own peril. The reason is simple: insurance companies often change what they cover from year to year, so it behooves enrollees (maybe with the help of family members) to update coverage. Go to the Medicare Plan Finder to compare plans and select what is right for you.
AFFORDABLE CARE ACT (ACA):
The 2020 Open Enrollment Period runs from November 1 to December 15. If you miss the deadline, you may be able to qualify for a Special Enrollment Period. Prices on average are expected to edge lower for silver plans, the most popular mid-range option on the exchanges. But costs are dependent on your state of residence.
RETIREMENT SAVINGS:
Traditional Employer Plans: In 2019, participants in 401(k)s, 403(b)s, 457 plans and the federal government Thrift Savings Plan were able to make a maximum pre-tax contribution of $19,000, with a bonus for catch-up limit of $6,000 for employees ages 50 (increases to $19,500 with a catch-up of $6,500 in 2020). These amounts do not include employer matches. If your plan provider allows for automatic escalation, choose it! By doing so, you can make sure that you are increasing your contribution level each year. While you’re at it, if there is an “auto-balancing” feature, use that too as it will keep your allocation in line with your desired target percentages for each holding.
If you are worried about not having access to your retirement contributions, the IRS is going to make it a little easier as of 2020. While hardship withdrawals are still limited to specific circumstances, the IRS will now allow employees to tap both their own contributions as well as their employer match, profit-sharing contributions and investment earnings. Additionally, you will not have to assume a 401(k) loan before applying for a hardship withdrawal and you will be able to continue contributing to your 401(k) as soon as you tap the account for the money, instead of being forced to wait six months before re-starting,
Roth Plans: Nearly three-quarters of employers are offering Roth 401(k)s to plan participants, yet only about 7.5 percent of employees are using them. As a reminder, with a Roth, workers make contributions using after-tax dollars and then they are able to take tax-free withdrawals at retirement. Roth 401(k)s are great for those who expect their tax brackets to rise in the future and also for higher income employees as well, because, Roth 401(k)s are not subject to minimum distribution requirements after age 70½, as long as they are rolled over to a Roth IRA.
Mega Backdoor Roth Conversions: This is a little complicated, but in a nutshell, a backdoor Roth IRA conversion is a mechanism that allows those with earned income that is too high to qualify for a Roth contribution, to make an after-tax contribution into an IRA and then immediately convert it into a Roth IRA (there are specific rules about this, so you need to be careful, especially if you have other IRA, SEP-IRA or SIMPLE IRA accounts).
The mega backdoor Roth is a super-sized backdoor Roth for those who have a 401(k) at work that allows after-tax contributions to get even more money (up to an additional $37,000) into a Roth account. The IRS has blessed this strategy, but there are specific steps that you will need to follow in order to comply. Your employer has to also offer something called an “in-service rollover” to a Roth IRA or lets you move money from the after-tax portion of your plan into the Roth 401(k) part of the plan.
INSURANCE COVERAGE:
Many companies offer affordable group rates for life, disability and long term care insurance, so you should definitely explore these options. This is a case where the buying power of a big group can help you find coverage that may not be available in the open market, especially when it comes to disability and long term care insurance, both of which are notoriously expensive in the private market. The most important thing to determine is whether the coverage is "portable", which means that you can take the policy with you, if you leave the company.
EDUCATION:
Paying Off Student Loans: According to the 2019 Society for Human Resource Management survey, employer-provided student loan repayment as a benefit has doubled since 2018 from 4 percent to 8 percent.
Reimbursement for Continuing Education: This valuable benefit is tougher to find, but some employers still help pay for undergraduate, graduate and certificate classes. There is usually a requirement that workers’ earn at least a “B” to qualify for reimbursement.