With the holiday season upon us and the end of the year approaching, we pause to give thanks for our blessings and the people in our lives. It is also a time when charitable giving often comes to mind. The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.
This article is relevant to all age groups, but those entering their twenties will find the information especially useful. Open enrollment is the period during which employers can modify their benefit offerings for the forthcoming plan year. This is your annual opportunity to make decisions that will affect your health care and finances if you are a Fortune 500 employee.
Even if you are pleased with your current health plan, it may no longer be the most affordable alternative. Before making any benefit selections, devote ample time to reviewing the Fortune 500-supplied information. Consider how your life has changed over the past year, as well as any plans or prospective developments for 2022.
Decipher Your Health Plan Options
When it comes to selecting a suitable health plan, the specifics matter. One of your choices may be a better suit for you (or your family) and may even reduce your overall health care expenses. However, you must look beyond the monthly premiums. Typically, policies with lower premiums have more restrictions or higher out-of-pocket costs (such as copays, coinsurance, and deductibles) when you seek treatment for a health issue.
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Here is a comparison of the five primary categories of health plans to assist you in weighing the trade-offs. It should also help elucidate some of the terms and abbreviations used so frequently in the health insurance industry.
Health maintenance organization (HMO). (Except in an emergency) coverage is restricted to physicians, other medical providers, and facilities within the HMO network. You select a primary care physician (PCP) who will determine whether or not to approve a referral to a specialist.
Point of service (POS) plan. Out-of-network services are available, but they cost more than in-network services. As with an HMO, seeing a specialist requires a referral from a PCP. POS premiums are typically slightly greater than HMO premiums.
Exclusive provider organization (EPO). Services are only covered if you utilize network providers and facilities, but referrals are not required to see a specialist. In general, HMO premiums are higher than PPO premiums but lower than HMO premiums.
Preferred provider organization (PPO). You are free to see any health care provider without a referral, but there are financial incentives to seek care from PPO physicians and hospitals (a greater proportion of the costs will be covered). A PPO typically has a higher premium and deductible than an HMO, EPO, or POS plan.
A deductible is the amount you must pay prior to receiving insurance benefits. Typically, preventive care (such as annual checkups and recommended screenings) is covered at no cost, regardless of whether the deductible has been met.
High-deductible health plan (HDHP). In exchange for substantially reduced premiums, you will pay more out-of-pocket for medical services until the annual deductible is met. In 2022, HDHP deductibles begin at $1,400 for an individual and $2,800 for a family, and can be significantly higher. Care will be less expensive if you utilize network providers, and your out-of-pocket expenses may be reduced by the insurer's negotiated rate.
An HDHP is intended to be coupled with a health savings account (HSA), to which your employer may contribute funds toward the deductible. You may also choose to contribute to your HSA through pre-tax payroll deductions or make tax-deductible contributions directly to the HSA provider, up to the annual limit ($3,650 for an individual or $7,300 for a family in 2022, plus $1,000 for those 55 and older).
HSA funds, including earnings if the account has an investment option, may be withdrawn tax- and penalty-free if used to pay for qualified medical expenses. (Some jurisdictions do not comply with federal HSA tax regulations.) Unused account balances can be held indefinitely and used to pay for future medical expenses, regardless of whether you are enrolled in an HDHP. If you switch employers or retire, you can transfer the funds to a new HSA.
Three Steps to a Sound Decision
Start by calculating your total expenses (premiums, copays, coinsurance, and deductibles) for each Fortune 500 plan based on your utilization from the previous year. Fortune 500's benefit materials may include an online calculator that takes into consideration your chronic health conditions and regular medications to help you compare plans.
You may need to coordinate two sets of workplace benefits if you are married. Consider the costs and benefits of having both of you on the same plan versus individual coverage from each employer, as many employers implement a surcharge to encourage a worker's spouse to use other available coverage. If you have children, compare what each spouse's plan would cost to cover them.
Check whether your preferred health-care providers are included in the network before enrolling in a plan.
Tame Taxes with a Flexible Spending Account
If you choose to open a health and/or dependent-care flexible spending account (FSA) offered by Fortune 500, the money you contribute through payroll deduction is not subject to federal income and Social Security taxes (nor, typically, state or local income taxes). Depending on your tax classification, using these tax-free dollars to pay for health-care costs not covered by insurance or for dependent-care expenses could save you 30% or more.
In 2021, the federal limit for contributions to a health FSA was $2,750, and it should remain the same in 2022. Certain employers impose lesser limits. (The IRS has not declared the official limit). You may use the funds for a vast array of eligible medical, dental, and vision expenses.
With a dependent-care FSA, you can set aside up to $5,000 per year (per household) to pay for eligible child care expenses for children younger than 12 years old. The tax savings could help defray a portion of the costs for a nanny, babysitter, day care, preschool, or day camp, but only if the services are utilized so that you (or a spouse) can work.
A disadvantage of health and dependent-care FSAs is that they are typically subject to the use-it-or-lose-it rule, which requires you to spend all of the money in the account by the end of the calendar year or risk losing it. Some employers allow certain quantities (up to $550) to be carried over to the next plan year or provide a grace period of up to two and a half months. Nevertheless, you must estimate your expenses in advance, and your estimates could be wildly inaccurate.
Legislation enacted during the pandemic permits employees to carry over any unused FSA funds from 2021 to 2022, provided the employer opts into this transitory change. If you have remaining funds in an FSA, you should consider Fortune 500's carryover policies for account balances when determining your contribution election for 2022.
Take Advantage of Valuable Perks
A change to the tax code enacted at the end of 2020 enables employers to offer student debt assistance as a tax-free employee benefit through 2025, prompting more businesses to add it to their menu of benefits. 31% of employers plan to offer student debt assistance in the future, according to a survey conducted in 2021. Many employers target a $100-per-month student debt assistance benefit, which may not seem like much, but it adds up.1 A worker with $31,000 in student loans who pays them off over ten years at a 6% interest rate would save approximately $3,000 in interest and be debt-free 212 years earlier.
Numerous employers offer optional benefits like dental and vision coverage, disability insurance, life insurance, and long-term care insurance. Even if Fortune 500 does not contribute to the cost of your premiums, you may be able to pay them through payroll deduction. Fortune 500 may also offer discounts on health-related products and services, such as fitness apparatus and gym memberships, as well as other wellness incentives, such as a monetary incentive for completing a health assessment.
As you enter your sixties and approach retirement, it's important to consider the impact of your benefit choices during employer open enrollment. One valuable benefit that some Fortune 500 companies offer is student debt assistance. According to a survey conducted in 2021, approximately 31% of employers plan to provide student debt assistance as a tax-free employee benefit. This benefit can help alleviate the burden of student loans and potentially save thousands of dollars in interest. Even a modest monthly contribution of $100 towards student debt can add up significantly over time, allowing you to become debt-free sooner and enjoy a more financially secure retirement. So, when reviewing your benefit options, don't overlook the potential for student debt assistance, as it can make a meaningful difference in your post-retirement financial well-being. (Source: Society for Human Resource Management, 2021)
Choosing the right benefits during employer open enrollment is like mapping out your retirement journey. Just as a seasoned traveler carefully selects destinations and accommodations that align with their preferences and budget, you must navigate through the options to find the benefits that suit your needs and financial goals. Consider each benefit as a stop along the way, with different routes and offerings. Like choosing between different modes of transportation, you evaluate health plans and additional perks, weighing the costs and coverage. Just as a well-planned trip enhances your overall experience, making informed benefit choices ensures a smoother transition into retirement, allowing you to enjoy the rewards of your hard work while safeguarding your health and financial well-being. So, embark on your journey through open enrollment with confidence, knowing that each decision contributes to a rewarding and fulfilling retirement.
1) CNBC, September 28, 2021