It’s Benefits Open Enrollment Season!

Tip #1 - Health Savings Accounts (HSAs):

The Tax-Free Savings Account You Didn’t Know You Had

A Health Savings Account (HSA) is a special account where you can store money to cover healthcare-related expenses, such as deductibles, copayments, prescriptions, vision, dental, and even long-term care. Many employers offer an option to contribute to an HSA and you can even purchase one outside of your employer if they don’t offer one. It’s one of the things you’ll have to decide on during open enrollment.

When I was younger, I ignored the whole HSA thing, because I thought, “I don’t have many medical bills, and I’d rather keep this money in my bank account!”

Then, I found out that HSAs are actually better retirement saving vehicles than 401k or IRA accounts and can supercharge the growth of your net worth. Why? 

1) It’s yours. Forever.

• Funds roll-over: Once the money goes in, it’s yours to keep - just like a 401K or IRA. This is different from a Flexible Savings Accounts (FSAs) where some of us scramble to use at the end of the year where you “use it or lose it.”
• It’s portable: You can take your HSA with you to your next employer. Again - yours to keep.

2) It makes you money! You can even use it as a non-medical retirement account

• Funds can be invested: Just like a 401k or IRA, you can invest your HSA in stocks, mutual funds, target date funds, etc for your money to grow over time.
• It’s retroactive so use it when you want: Establish an HSA, then choose when to reimburse yourself for qualified out of pocket medical expenses. Sure, you could use it now and lose out on the potential market growth, but you can also keep your medical receipts and cash-in when you need extra income. Or just wait for retirement when most of us will have higher medical costs anyway.

3) Access to FREE money and NO taxes!

Free Money: Many employers will provide contribution match to incentivize people to use HSAs, just for signing up!

HSAs are a TRIPLE tax benefit: Money goes in pre-tax. Money grows tax-free, and when you withdraw the money to pay for qualified medical expenses for your family, you don’t pay taxes. This makes it a preferred retirement vehicle over 401k or IRAs.

All of us have higher medical expenses as we age so why not make money on the money you’re going to spend anyway!?

• Note: If you don’t spend it on medical costs, you can still choose to withdraw it in retirement for personal reasons. You will pay taxes but it will essentially serves as a pre-tax retirement account (i.e. like traditional 401k), meaning no taxes going in, but you will taxes upon withdrawal.

Tip #2 - The Premium vs. Deductible Math Trap

Many employees auto-renew the "Gold" or PPO plan because they fear the higher deductible of the High Deductible Health Plan (HDHP). They are often paying for insurance they don't use.

• The Reality: You are paying a "guaranteed loss" (higher premiums) to avoid a "potential loss" (the deductible).
• The Win: Calculate the annual difference in premiums between the PPO and the HDHP.
  • Example: If the HDHP saves you $200/month in premiums ($2,400/year), and your employer kicks in $1,000 to your HSA, you are $3,400 ahead before you even see a doctor. If you are generally healthy, the "scary" plan is often the mathematical winner.

3. The "Lazy Tax" on Life Insurance

It is tempting to click "Add Supplemental Life Insurance" through your employer because it takes five seconds and no medical exam. However, you might be overpaying for renting an inferior policy.

• The Reality: Employer life insurance is rarely portable (you lose it if you leave the job) and the rates often increase significantly as you age (age-banded premiums).
• The Win: Use open enrollment to grab the free basic coverage your company offers (usually 1x salary), but shop for private term life insurance for the rest. You will likely lock in a lower rate for 20 years that belongs to you, not your boss.

Benefit Selection Should Fit Into Your WHOLE Financial Strategy

Ok, HSAs are one sweet tip, but there are many other ways that your benefits selection can impact your financial picture. Moreover, your selection should flow from your financial situation and goals. 

I recently worked with Jason, a new college graduate staring down a 50-page benefits guide at his first job. He was overwhelmed, but wanted to maximize his benefit choices and other financial strategies. I helped him cut through the noise, choose the right health plan, and optimize his retirement savings, all before the deadline.

I don’t know who likes open enrollment (other than finance nerds like me), but this routine HR task can be one of the most critical financial decisions you’ll make all year. 

Open enrollment doesn't have to be an overwhelming pop quiz; it's an opportunity to gain confidence and control as you strengthen your financial foundation. If the acronyms are swirling and you're anxious about leaving thousands on the table, it’s time for a personalized strategy from Financial Butlers.