It’s open enrollment season at workplaces across the country. Maybe you got a letter at home or an email at work about it. For a lot of us, that means it’s time to make some important decisions about health care and retirement savings. And with all the options available, it can be confusing, even a little overwhelming.
Let’s look at health care first. Here are some basics to keep in mind.
Many employers now offer the option of a high-deductible insurance plan. If you’re on the younger side, you’re healthy and can afford to pay a good bit out of pocket, this could be the right fit for you. The deductible – the amount you pay before insurance kicks in – can be several thousand dollars. Some small businesses, in an attempt to hold down costs, are setting deductibles in the $10,000 range. But, if you don’t use much health care in a typical year, that kind of number shouldn’t faze you.
The other thing about high-deductible plans is they’re often paired with a health savings account, or HSA. Money is set aside from your paycheck, tax-free in a savings account for you to pay out-of-pocket expenses. Unlike flexible spending accounts (FSAs) in traditional health plans, HSAs aren’t “use it or lose it” – any money unspent at the end of the year stays in the account. And you have the option to invest some of the money through your plan administrator. So if you’ve got cash sitting there that’s not being used for medical expenses, you can put it to work for you. The 2013 contribution limit for an HSA is $3,250 for individuals and $6,450 for families.
If you’re older, you or a family member on your plan has a chronic condition, or money is tight, a traditional plan probably is the way to go. There are various flavors, like health maintenance organizations (HMO) and preferred provider organizations (PPO). There are numerous differences between the two in the way you receive care, so be sure to read the literature from your plan provider.
Traditional plans often come with the aforementioned flexible spending accounts. Money is set aside pre-tax at the beginning of the year, and you get reimbursed for expenses until you hit your deductible. For medical care, the contribution limit for next year is $2,500. That’s down from $5,000, as part of Obamacare. There’s also a FSA for dependent care. Parents can use this for any child care expenses they incur while working – babysitters, nannies, day care, pre-K programs. The contribution limit there remains at $5,000.
It’s important to remember that FSAs are “use it or lose it.” Make sure not to set aside more than you think you’ll spend over the course of a year, because any remaining balance will disappear. That’s why you see people scrambling to buy things like new glasses late in December!