Open Enrollment Benefits You May Not Know About

When open enrollment arrives each year, millions of workers compare their options for health, vision and dental plans for the upcoming year. But these are only a few of the benefits you can take advantage of—many employers also offer other optional perks during open enrollment. Here are some you may want to consider.

Health savings accounts (HSAs)

If you select a high-deductible health plan (HDHP) for your insurance next year, you’ll likely have to pay more for doctor visits or prescriptions before your coverage kicks in. The good news: You can snag multiple tax breaks—and pay for those expenses—with a health savings account (HSA) Opens in new window.

HSAs are triple tax free: You fund them with pretax dollars; the accounts (which can hold cash and even investments) can grow tax deferred; and withdrawals are tax free as long as you use the money for qualified medical expenses. (HSAs are also portable—they roll over from one year to the next, and you can take your account with you if you leave your job.)

While you can make one-time deposits to an HSA anytime, open enrollment is a convenient time to set up regular, automatic contributions through your payroll. (Your employer may also kick in money as an incentive for you to save.) Also, in many cases contributions through an employer are exempt from Medicare and Social Security taxes, allowing you to stretch your health care dollars even more. In 2022, individuals can contribute up to $3,650 to an HSA (including any employer contributions), while those with family health coverage can add up to $7,300.¹

Health care FSAs

Many employers offer tax-favored health care flexible spending arrangements (FSAs)—a.k.a. “flexible spending accounts”—that allow you to use pretax funds for hospital bills, doctor visits, eyeglasses or other eligible expenses.

One advantage of health care FSAs is that you usually don't need a high-deductible health plan to participate. However, if you are in a high-deductible plan, you still may be able to boost your tax benefits with a “limited purpose” FSA. That’s because LPFSAs—which only cover eligible out-of-pocket dental and vision expenses—can work in tandem with an HSA.

But there are caveats: You lose any balance you don’t use before the end of the year (employers may offer a grace period through March 15 of the following year). Also, you can’t change your contribution level mid-year unless you experience a “qualifying event” like childbirth or marriage. Be careful when choosing your FSA amount during open enrollment, so you don’t lose money you don't spend.

Dependent care FSAs

As working parents know, day care can be expensive. Luckily, if your qualifying child is under 13 (or an older dependent who can’t care for themself), you can fund a dependent care flexible spending account (DCFSA) to ease some of the financial strain.

As with a health care FSA, you contribute pretax dollars that you can tap all year for day care, after-school programs, day camps and babysitters you use during work hours. In 2021, individual and joint tax filers can exclude up to $10,500 ($5,250 for married couples who file separately) Opens in new window in DCFSA contributions from their taxable income.² (These amounts include contributions from both the employee and employer.)

Like health care FSAs, DCFSAs are “use it or lose it” deals, though some employers offer a grace period when you can tap unused funds from the prior year. Because of unique rules for 2021 and 2022 Opens in new window, you should also think about any funds that will be carried over when choosing your contribution amount.

Retirement plans

If you have access to a 401(k) or similar workplace retirement plan, open enrollment is a great opportunity to build your nest egg or reevaluate your contribution level.

With a traditional 401(k) you contribute pretax dollars, and the account can grow tax deferred until you withdraw money, typically after age 59½. (By contrast, with a Roth 401(k) you contribute after-tax dollars, but withdrawals are tax free if you meet certain criteria.) Many employers also match some of your contributions, which makes these plans even more powerful.

Life insurance

There’s a good chance you’re eligible for a free life insurance benefit through your employer, although it may only provide your dependents with a “death benefit” equal to one or two years of your salary. That’s why many companies offer additional, supplemental life insurance you can purchase through payroll deductions.

These plans tend to offer lower group rates than you can get on your own, and a medical exam often isn’t required. The drawback: The coverage usually can’t go with you if you switch employers.

Disability insurance

According to the Society for Human Resource Management, 71% of organizations offer long-term disability insurance Opens in new window, and 61% offer short-term coverage. Even if you have to pay part of the premium, it can be a worthwhile investment.

Disability insurance replaces part of your paycheck if you have an illness or injury that keeps you from working. For example, the Social Security Administration says a 20-year-old worker has a 1-in-4 chance of being disabled  PDF opens in new window before reaching their full retirement age Opens in new window. It's wise to have an alternate plan if anything should go wrong.

Commuter benefits

After working from home for months, many employees are finally returning to the office. If you use public transportation—or drive—to get there, you might be able to take advantage of commuter benefits through your employer.

These accounts let you set aside part of your pay before taxes—up to an expected $280 a month in 2022—to cover bus, train, subway or even ferry rides.³ You can also use them for parking fees, whether you leave your car near your workplace or at a train or bus station.

Student loan repayment

According to U.S. News & World Report, college grads from the class of 2020 who took out student loans borrowed an average of $29,927—about $5,000 more than in 2010.⁴ To help ease this burden, a small but growing number of employers are contributing to employees' student loan payments. If you're faced with college debt, find out if your employer offers this benefit or plans to in the future.

Emergency savings

Although experts suggest having an emergency fund of at least three to six months' living expenses, many Americans fall short. In fact, the Federal Reserve reports that only 64% of households Opens in new window can pay an unexpected bill of just $400 without borrowing. The good news is that many employers are trying to encourage rainy-day savings, typically with matching funds or other benefits. If your employer is among them, that perk can make it easier—and faster—to create financial stability.

Footnotes

1. ¹ Rebecca Moore, "IRS Publishes Calendar Year 2022 HSA Contribution Limits," PLANSPONSOR, May 12, 2021 (plansponsor.com/irs-publishes-calendar-year-2022-hsa-contribution-limits/)
2. ² For 2022, the tax-free contribution limits are scheduled to revert to $5,000 for single and joint filers ($2,500 for married couples who file separately). At press time Congress was considering but had not ratified legislation to make the 2021 limits permanent.
3. ³ Margaret Berger, James Chakan and Dorian Smith, "2022 Transportation, Health FSA and Archer MSA Limits Projected," Mercer, Aug. 18, 2021 (mercer.com/our-thinking/law-and-policy-group/2022-transportation-health-fsa-and-archer-msa-limits-projected.html). Please note: The figures shown are an estimate for educational purposes only. Actual 2022 figures have not yet been released as of the date of publication.
4. ⁴ Emma Kerr and Sarah Wood, "See 10 Years of Average Total Student Loan Debt," U.S. News & World Report, Sept. 14, 2021 (usnews.com/education/best-colleges/paying-for-college/articles/see-how-student-loan-borrowing-has-risen-in-10-years)

Daniel Kurt is a freelance writer with over 10 years of experience covering topics in personal finance, retirement planning, insurance and more. His work has appeared on Investopedia, AARP Bulletin, Fatherly and Exceptional magazine.

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