Each year, we’re given a fresh start in the most basic sense: you throw out the old calendar and hang a fresh one! On January 1, 2023, the sun will rise and you’ll make various resolutions, whether that means working out for the first 10 days of the year, making a pledge to cut down on “screen time”, or dedicating yourself to a cause. But we’re not here to talk about your dreamy New Year resolutions, rather, actionable financial choices offered during open enrollment season. Let’s get to it!
Open Enrollment 2023
You probably have 10 different emails from your HR department reminding you about open enrollment. Have you read them? You should. Open enrollment is your annual opportunity to review/change benefit options such as healthcare, dental, flexible savings accounts (FSAs), short and long-term disability insurance, and much more!
When is the last time you have reviewed all your health insurance options? Who knows, this could be the year you can switch to a high deductible health plan (HDHP) that allows HSA contributions. If you’ve been a frequent visitor at Wealthy Idiots, you’d know that the HSA is one of the biggest tax-advantaged accounts and has a contribution limit of $3,850 for an individual and $7,750 for a family! You should definitely take a look at this during open enrollment season.
There are a few things hiding in open enrollment that people don’t often think about or pay much attention to.
- Short and Long-term disability. Are you thinking about having a kid in the next couple of years? By establishing this coverage, you could retain full pay for an extended period in the event that you are out of work for a prolonged period of time. These options are usually quite affordable.
- Dependent Care FSA. This is exactly how it sounds: a flexible spending account for your dependent care, aka childcare. You can contribute $5,000 to a dedicated account and subsequently use that money to pay childcare expenses. If you’re in the 22% tax bracket, this is an immediate savings of $1,100 for the year. Not too shabby just for reading your emails and this article.
- Lesser-Known health plans. This one is vastly underrated. When we first saw our HDHP options, we hadn’t heard of several of the companies. Once we started researching, some of them had great reviews. After having the plan for 4 years now, we have absolutely no regrets. Morale of the story – don’t discard a provider just because they aren’t a household name.
Things to avoid
HR departments aren’t perfect, and you may have some benefit options that were sold hard to your employer by a benefit advisor or broker. These options are often very lucrative for the advisor/broker, and should be avoided by the consumer.
- Whole/Universal Life Insurance. 100% garbage product. There, saved you the trouble. Avoid this at all costs unless you have a net worth of over $10M.
- Long-Term Care Insurance. This insurance covers your prospective long-term care needs in old age, but could occur sooner if you suffer a debilitating injury or illness. If you’re in your 20’s, 30’s, or 40’s, do you think it’s a great idea to pre-pay for this for years? Also, the rates have been creeping up as of late.
- Legal assistance. For most people, this is completely unnecessary. If you’re truly concerned, I would recommend purchasing an umbrella policy from your insurer, which would cover most catastrophic situations where you could bear liability.
Things not included in open enrollment
There are often some misconceptions regarding what things are only available in open enrollment versus those that can be changed anytime. Typically, 401k and HSA contributions can be changed at any time throughout the year. In fact, I’ve already adjusted my 401k contributions for the 2023 IRS limit, even though it’s not 2023 yet and I’m not in open enrollment.
With that said, you can even change your health plan if you have a qualifying event, such as a birth of a child, marriage or divorce, or one of many other things. Consult your HR department about this specifically.
It may also be an opportune time to get some term life insurance quotes, if needed. If someone currently relies on you financially, it’s likely that term life insurance could fill a need in the event of your death. The younger and healthier you are at time of purchase equals a better rate. Don’t wait until you’re 50 to buy term life.
Lastly, you can adjust your tax withholding at anytime throughout the year, so don’t fret if you accidently messed up the W4 form from the IRS that couldn’t possibly be any more complicated. As always, I recommend building an Excel spreadsheet or Google Sheet to calculate tax liability, anyhow!
Start the year off with a bang!
While this article is about open enrollment, I don’t want to miss the opportunity to stress that a new year is a great time to take a step in a positive direction financially. Maybe you’ve only been contributing 10% of your pay to your 401k plan, but decided to jump to 20% starting in 2023. DO IT! Or you’ve been eyeing that HSA for years, but had pregnancies that made you nervous… but now that’s done! DO IT.
There is no better time to change than now. Take a leap forward in 2023, and watch your finances do the same!