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Retirement plans, health insurance and other benefits you get through your employer often reset with (or near) the new year. How can you best take advantage of your employee benefits as the year winds down? Taking the following steps helps ensure you get the most from your benefits before the year ends.
Health Insurance Benefits
Strategic use of your health insurance can save you money. Here's what to know.
Open enrollment for health insurance is the period during the year when you can opt into or out of health insurance if you haven't already done so or make changes to your existing plan. The time frame for employer-sponsored insurance open enrollment varies depending on your specific plan, but generally takes place in the fall. Check with your employer to see when open enrollment is at your company. Even if you're generally happy with your health insurance, you should take time to review your plan and any new options being offered.
Your health insurance deductible (the amount you pay out of pocket for health care before your insurance begins to cover the cost) generally resets with the new calendar year. If you've already reached your deductible, see if you can schedule any doctor visits or procedures before year-end so they'll be covered by insurance. If you wait until next year, you'll have to pay out of pocket until you meet your deductible. Some insurance plans have separate deductibles for medical care and prescription drugs. If yours does, and you've met your pharmacy deductible, see if you can refill prescriptions before January 1.
Dental insurance coverage typically sets an annual limit on benefits paid during a calendar year. If you haven't already maxed out your benefits, make an appointment to see if any treatment is recommended. If you need $2,000 worth of crowns and fillings, for instance, but your maximum insurance payout is $1,000 per year, you could schedule $1,000 worth of the work to be done this year and the rest next year to get as much as possible covered by insurance.
Unlike medical and dental insurance, vision insurance policies typically work more like discount plans. They usually cover all or part of the cost of an annual eye exam and pay a certain amount toward the cost of contact lenses or eyeglasses. Review your plan details to see what's covered and within what time frame. For example, many plans pay for eyeglasses only every other year. Based on the benefits you've used this year, decide whether it makes sense to schedule an appointment or order new corrective lenses before year-end.
Tax-Advantaged Savings Accounts
If you use a flexible spending account (FSA) or health savings account (HSA) to help pay medical expenses, here's what to know.
Money in an HSA rolls over from one year to the next, and can even be used as an investment vehicle for retirement, so there's really no downside to socking away as much as you can. The maximum annual contribution to an HSA in 2021 is $3,600 for individuals and $7,200 for families; those 55 and older can contribute an additional $1,000. You can change your contribution at any time, so if you haven't maxed out your contribution for the year, consider doing so before January 1.
There are FSAs for health care and for dependent care (DCFSAs). Normally, money in a DCFSA must be used by year-end; it doesn't roll over into the following year. Depending on your employer, a health care FSA may follow this same "use it or lose it" approach, may allow you to roll over up to $550 to the next year, or may give you a 2½-month grace period to use this year's remaining funds before you lose them.
However, the Consolidated Appropriations Act of 2021 allowed employers to change how they handle FSAs. Employers can let employees:
- Roll over unlimited funds from plan year 2021 to 2022
- Get up to a 12-month grace period to use funds from plan years 2020 and 2021
- Change contributions at any time (normally, you must have a qualifying life event)
Keep in mind, employers aren't required to change the way they treat FSA funds, so check to see if yours has done so. If your health care FSA doesn't roll over funds or offer a grace period, make sure to use the money in your account before the end of the year.
You have more options for how to use the money in your FSA, since the Coronavirus Aid, Relief and Economic Security (CARES) Act expanded the list of items considered qualified medical expenses for HSAs and FSAs. For example, menstrual products; thermometers; over-the-counter medications; and home COVID-19 testing and personal protective equipment, such as masks, hand sanitizer and sanitizing wipes, all qualify. Stock up now, before cold and flu season is well underway.
Deductible Medical Expenses
Those who had high out-of-pocket medical and dental costs this year may be able to deduct these expenses at tax time. Typically, you can deduct medical and dental expenses only if they exceed 7.5% of your adjusted gross income (AGI). If you're close to that threshold, having additional medical or dental procedures done—or purchasing additional health care supplies—could push you over the limit and allow a deduction. (Medical and dental expenses paid with an HSA or FSA cannot be deducted, since those funds are already tax-advantaged.)
Do you have a 401(k) plan at work? The federal 2021 limit on employee elective deferrals is $19,500 (although your plan may have lower limits). If you'll be over 50 by year-end, you can also make an annual catch-up contribution of up to $6,500 in 2021. A SIMPLE IRA or a SIMPLE 401(k) plan may allow those over 50 to make annual catch-up contributions up to $3,000 in 2021.
If you haven't already maxed out your retirement plan for the year, see if there's still time. Your 401(k) contributions must be made by the end of the year; generally, that means your final paycheck of the year. IRA contributions must be made by the due date of your federal tax return, not including any extensions.
Paid Time Off
Each state has its own laws regarding paid time off (PTO). Employers generally choose one of the following approaches to deal with accrued PTO that isn't used by the end of the year:
- Roll it over to next year
- Lose it
- Cash it out, either upon termination or at year-end
Due to the pandemic, many people delayed vacations this year—and some employers adjusted their PTO policies accordingly. Check to see if your company policy has changed. If your PTO is about to expire, ask for time off before January 1. Don't need or want time off before the end of the year? Some companies let employees donate unused PTO to other employees who have medical emergencies or ill family members to care for but have used up their own PTO.
Use Your Benefits Wisely
From health insurance to retirement plans, employee benefits are an important part of your overall compensation. By strategizing the best way to use your benefits, you can save money, stay healthier and enjoy a more secure retirement. As the year draws to a close, don't miss your opportunity to take advantage of all the financial assistance your employer provides.