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As the emotional hangover from the election recedes, let’s concentrate on something you can control: open enrollment season for health coverage!
I hear you groaning, but this is your not-so-gentle nudge to pay attention, because there is serious money on the line. For the 157 million Americans who receive their health insurance benefits through their employers, workers will shell out $5,588 for family coverage ($1,243 for single), not including deductibles, according to the annual Kaiser Family Foundation survey.
To get started, review your existing coverage, what you spent this past year; and then try to project what your health care costs will be in 2021, that may sound crazy amid a health pandemic, but do your best. Then compare available plans to see what they cover; how much they cost, including co-pays and deductibles; and whether your doctors are in the network. Don’t forget to factor in regular medications that you take and make sure that the plan covers them.
You may want to consider a High Deductible Health Plan (HDHP), which offers lower premiums and is paired with tax-advantaged Health Savings Accounts (HSAs). 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. The maximum contribution for 2021 is $3,600 for an individual and $7,200 for a family. Those who are over age 55 can make an extra $1,000 contribution.
Amid COVID-19, the IRS has made changes to some HDHP rules. The CARES Act provides “flexibility for health care spending that may be helpful.” Specifically, HDHP’s temporarily (from January 1, 2020 through December 31, 2021) can cover telehealth and other remote care services without a deductible, or with a deductible below the minimum annual deductible otherwise required by law.
In addition to HDHPs, many companies also offer Flexible Spending Accounts (FSAs), which allow you to set aside $2,750 pre-tax in 2021 to help pay for unreimbursed medical expenses. Some FSA’s can be “use-it-or-lose it,” which means you have to 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 $550 of unused FSA funds to the following plan year, but some of those rules have been loosened due to the pandemic, so check with your HR department.
MEDICARE: Open enrollment has begun for the nation’s health care plan for those over age 65 and runs through December 7th. Because insurance companies often change what they cover from year to year and/or your health or regular medications also may have changes, all enrollees (maybe with the help of family or friends) should review and potentially update their coverage. Go to the Medicare Plan Finder to compare plans and select what is right for you.
AFFORDABLE CARE ACT (ACA): The 2021 ACA Open Enrollment Period has started and runs to December 15. However, if you lose your job-based benefits, whether due to COVID-19 or other reasons, you may qualify for a Special Enrollment Period. Additionally, if your income has dropped, don’t forget to update your ACA application, doing so may allow you to qualify for federal tax credits. If you are having problems paying for premiums because of a hardship due to COVID-19, ask your insurance company to extend premium payment deadlines or ask that they delay terminating your coverage if you can’t pay your premiums. For more information about COVID-related changes to the ACA, go to healthcare.gov/coronavirus.
RETIREMENT BENEFITS:
The IRS did not make many changes for 2021 retirement contribution limits, but there were some adjustments for phase-out ranges.
Employer Based Plans: In 2021, participants in 401(k)s, 403(b)s, 457 plans and the federal government Thrift Savings Plan will be able to make a maximum pre-tax contribution of $19,500, with a bonus for catch-up limit of $6,500 for employees ages 50. These amounts do not include employer matches. If you are lucky enough to be working, try to bump up your contribution until you max out.
Roth Plans: Roth versions of the above-mentioned plans allow you to make the same level of contributions using after-tax dollars. When you later access the funds in retirement, the withdrawals are tax-free. 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 72, as long as they are rolled over to a Roth IRA.
Individual Retirement Accounts (IRAs): The limit on annual contributions to a Traditional or Roth IRA remains unchanged at $6,000 for 2021, and the catch-up contribution for those aged 50 and over remains $1,000. If you are covered by a workplace retirement plan, you may also be able to deduct contributions to a traditional IRA if you meet certain conditions.
For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000; for married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000; and for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000.
Hardship Withdrawals from Retirement Plans: The CARES Act, which expires at the end of 2020, provided temporary relief from IRS rules about accessing retirement accounts. If you, a spouse or a dependent were diagnosed with COVID-19 or you experienced hardship (i.e., furlough, layoff, job loss, reduction in income) due to the pandemic, you can self-certify and make a coronavirus retirement distribution of up to $100,000. If you are under the age of 59 ½, the withdrawals will NOT be subject to the standard 10 percent early distribution penalty. The amount withdrawn under the CARES Act provision would still be taxable, but you are able to spread out the amount over a three-year period, instead of it being due all at once next April.
If your employer plan allows loans, COVID-affected individuals may borrow the lesser of 100 percent of the account balance or $100,000 (up from $50,000). (As a reminder, IRAs do not allow loans.) The IRS notes: “Employers can choose whether to implement these coronavirus-related distribution and loan rules; however, qualified individuals can claim the tax benefits of the coronavirus-related distribution rules even if plan provisions aren't changed.”
Beyond COVID, hardship withdrawals are limited to specific circumstances, including: (1) certain medical expenses; (2) costs relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee's principal residence that would qualify for the casualty deduction under IRC Section 165.