What should I focus on when making decisions during open enrollment for my employee benefits for 2015?
People tend to concentrate on health insurance decisions during open enrollment in the fall (see our Guide to Picking the Best Health Insurance for 2015 for more information about those choices). But you also have several other options for employee benefits that can provide valuable protection, reduce your tax bill and save you money.
Contribute to a health care flexible-spending account. The amount of money you can contribute pretax to a health care FSA rises a tiny bit, from $2,500 to $2,550, in 2015. And the U.S. Treasury made a big change to the spending rules last year, allowing employers to let you roll over $500 remaining in the account from one year to the next. Many firms have adopted this $500 carryover, but others chose to give you a grace period until March 15 to use all of the money in the account instead (employers must choose one or the other). Other companies still require you to use the money by December 31 or lose it. Ask your employer about its rules for 2015; many are in the process of changing to the $500 carryover. See Navigating New Rules for Flexible Spending Accounts for more information about the rules.
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Contribute to a health savings account.If you have a high-deductible health insurance policy in 2015 (with a deductible of at least $1,300 for individual coverage and $2,600 for family coverage), you may qualify to contribute to a health savings account. You can contribute up to $3,350 in 2015 if you have individual coverage, or $6,650 for family coverage, plus up to $1,000 if you’re 55 or older anytime during the year. Your contributions are pretax if made through payroll deduction or tax-deductible if you have an individual policy. You generally can’t contribute to both an FSA and an HSA in the same year (unless you have a limited-purpose FSA that only covers certain expenses, such as dental and vision costs). If you have an eligible high-deductible health insurance policy, it’s usually better to contribute to an HSA than to an FSA because you have higher contribution limits (and many employers add extra money to the account, too) and you don’t have the use-it-or-lose-it rules.
You can use the money tax-free for current medical expenses, but you also have the option of keeping it growing in the account for years, then using it tax-free for medical expenses in the future. See FAQs About Health Savings Accounts for more information. Your employer may add even more money to your account if you participate in a wellness program. See Why It Pays to Join the Company Wellness Program for more information.
Choose the dependent-care flexible-spending account. You can contribute up to $5,000 pretax per family to a dependent-care FSA, if offered by your employer. You can then use the money tax-free to pay for care for your children under age 13 while you and your spouse work (one spouse can be a full-time student while the other one works). Eligible expenses include the cost of day care, a nanny, preschool, before-school and after-school care, and even summer day camp.
The dependent-care FSA will generally save you more in taxes than taking the child-care credit unless you have low income. But if you have two or more kids younger than 13 and spend more than $5,000 on child care, you may be able to set aside the maximum $5,000 in a dependent-care FSA at work and still take the child-care credit for up to $1,000 of additional expenses. Say you spend a total of $6,000. You could claim $1,000 with the child-care credit, giving you a tax break of $200 to $350, depending on your income. See Tax Breaks for Dependent-Care Expenses for more information.
Take advantage of transportation benefits. If your employer offers a commuter benefits program, you can set aside up to $130 per month pretax for public transportation, such as the subway, bus or train. People who drive to work can set aside up to $250 per month pretax for parking. If you drive and also use public transportation -- if, for example, you drive to a park-and-ride lot at the subway -- you can take both benefits and set aside $380 per month. These levels are the same as they were for 2014.
Boost your retirement savings contributions. It’s also a good time of year to reassess how much money to set aside from each paycheck for your retirement savings. You’ll be able to contribute up to $18,000 to a 401(k), 403(b), 457 or the federal Thrift Savings Plan in 2015, which is a $500 increase over 2014. If you’re 50 or older anytime during 2015, you can also bump up your contributions (even before your birthday) to take advantage of the catch-up contribution limit, which increases from $5,500 in 2014 to $6,000 in 2015. See How Much You Can Contribute to Retirement Plans in 2015 for more information.
Consider Roth contributions. If your employer offers both Roth and traditional contributions to your 401(k) or other retirement-savings plan, you may want to reassess which route to take for 2015. If you’ve been contributing primarily to a traditional, pretax 401(k), consider diverting at least some of your contribution to the Roth 401(k) instead – you won’t get a tax break now, but you’ll be able to withdraw the money tax-free in retirement. It’s a good way to build up some tax-free savings for the future, especially if your income is too high to contribute to a Roth IRA. See Invest in a Roth 401(k) If You Can for more information.
Weigh extra disability insurance. If your employer lets you buy extra disability insurance during open enrollment, that may be the best way to boost your benefits if your current coverage falls short. Many employers automatically provide some disability insurance for employees, but those employer-paid policies generally cover 60% or less of pretax income, with a monthly cap of $5,000. If that’s not enough money to cover your bills, consider buying extra coverage from your boss, which could cost $250 or more per year, depending on the amount and policy details. See Why You Should Get More Disability Insurance for more information.
Think about long-term-care insurance. Some employers also give you the option to buy long-term-care insurance during open enrollment, often with a 5% to 10% group discount. And you may benefit even more if you’re a single woman. Most long-term-care insurance companies recently changed rates to charge single women as much as 50% more than single men when they buy coverage on their own. But long-term-care policies offered through employers generally must have unisex rates. Healthy men or couples, however, may do better with an individual policy. Compare the prices and coverage offered by your employer with buying a policy on your own. See How to Buy Long-Term-Care Insurance for more information.
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