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.
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.
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.