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Open Enrollment Tips: A few ideas for navigating your employer-sponsored benefits

In my household September and October means settling into school routines, soccer, and intense discussions on Halloween costumes.  It is also the beginning of open enrollment for our employer-sponsored benefit plans.  With that in mind, here’s a few tips to help make this a successful open enrollment season:

Consider a health savings account (if available): An HSA can actually be a great retirement planning tool.  HSA accounts can be used to pay for healthcare expenses and Medicare premiums in retirement.  HSA’s can also be used towards the cost of long-term care.  Consider saving into an HSA and paying for your routine medical costs (to the extent possible) out of cash flows.  This will help your balance build over time.  HSA contributions are pretax, grow tax-deferred, and qualified distributions are tax-free.  This can also be a great tax planning tool for people in higher tax brackets.

Maximize your group disability benefits: Disability coverage through your employer is often less expensive and easier to get than a personal disability policy.  Just keep in mind that most group disability benefits only cover base salary and do not cover bonuses or commissions.  Elect to pay for disability benefits using after-tax dollars.  This may seem counter-intuitive, but paying disability premiums with pretax dollars makes the benefit taxable.  Paying for disability premiums with after-tax dollars means the benefit is tax-free.

Review your beneficiary designations: This is a big one.  Plan administrators are forced to use the latest beneficiary designations on file when determining beneficiaries.  Courts have found time and again that ERISA law preempts state statutes on community property.  This means that an ex-spouse could end up receiving death benefits, or an additional child could be left out of receiving their benefits, if beneficiary designations are never updated.  Open enrollment is a good time to review your beneficiary designations across all of your employer-sponsored plans.

Increase your 401(k) deferral rate by 1%: This one is near and dear to my heart!  For most people a 1% increase in their 401(k) deferral rate amounts to about a $6.50-$7.00 adjustment to their net paycheck for every $1000 of gross pay.  This doesn’t sound like a lot, but the small adjustment can make a big difference in one’s retirement savings when applied over many years.