Choose Your Benefits Wisely
Medical debt remains the number one reason Americans file bankruptcy. Often medical bills are unavoidable and yet they cause extreme amounts of stress. We must do our best to combat not becoming one of the statistics. The part you play begins with open enrollment.
Over the next few weeks, everyone will have the opportunity to choose their benefits during the open enrollment period. From medical plans to dependent care, you must pick the plans and amounts that fit your family the best. Here are a few things to pay attention to as you make your benefits elections.
Health Savings Account
Some of the numbers have changed for the year 2022. The total health savings account dollars you can contribute for a family is now $7,300 and for single people, it is $3,650. If you choose a high deductible plan you have the option to save towards your out-of-pocket expenses in the health savings account. These pre-tax dollars and can grow tax-free if you choose to invest them as well. I love these accounts. It makes your decision to handle preventive and maintenance easily and with pre-tax dollars. You can also allow the funds to roll over and grow until you reach age 65. Then you can use the funds for retirement. Win-win all around!
Flexible Spending Account
Another number has changed for this year. If you don’t choose a high deductible plan, you do have the option to use a flexible spending account. Again, this account uses pre-tax dollars and allows you to pay any out-of-pocket medical expenses incurred. The major difference is that you need to use every dollar of this allotment before Dec. 31st. The maximum contribution to this account is $2,850. I highly recommend you review the needs of your family and only put into this account what you will actually use. You don’t want to overfund this account.
Since we are still wearing face masks and using hand sanitizer with wild abandon these expenses can be purchased using the health savings and flexible spending accounts. Keep this in mind as you set your amounts.
Dependent Care Account
Finally, the dependent care account used to pay childcare expenses is also pre-tax up to $5,000. However, due to the COVID-19 pandemic, many families have been unable to use all of their allotted dependent care funds. For the 2020 and 2021 tax years you have been able to roll over amounts, so you don’t lose money. Therefore, you can claim up to $10,500 in 2021 for pre-tax dependent care. Choose carefully how much you put into this account for 2022 as a result. The goal is to use every dollar you put into these accounts. If you can reduce your contribution, you may be able to enjoy more money in your budget for a season. If you could use an extra few hundred dollars explore this option. For more info on the rollover provisions check out this article.
There are so many other benefits that you will be choosing during open enrollment. Dental and vision plans are typically discount plans but do save you money in the long run if you use them properly. Life insurance is so cheap through group plans that I typically say max it out if you can. Disability is great to have especially if you are still getting out of debt. Consider your needs as a family before you make any sweeping changes.
Now is also a great time to review your retirement contributions. The new contribution limit for 2022 is $20,500 and $6,500 for the catch-up contribution if you are over the age of 50. A good rule of thumb is to increase your contribution percentage each year or when you get a raise. Eventually, you will get to the limit if you remain consistent. Your company 401k plan is an easy way to build wealth and provides income at retirement.
There is a lot to consider as you choose your benefits. Take the necessary time to figure out what is best for your family. You don’t want to be caught without the proper coverage in the event of an emergency or important medical need. If you need some help deciding what is best feel free to schedule a chat with me. I’m happy to help in any way I can.
-Ericka Young
