This year’s pandemic has certainly thrown us for a loop, and 2020 has been anything but routine. Still, some things haven’t changed. This is the time of year you’ll be asked to choose your employee benefits for 2021, knowing that the virus may have changed some of your priorities since the last time you made those choices. You may be working from home and your kids may be learning virtually – and your childcare needs may be very different than they were in the past. You or your spouse may have different jobs and new benefits options – or one of you may have been among the millions of people who lost their jobs this year. You may also have different health-care needs or a heightened interest in making sure your family is protected if you end up having large medical expenses or are unable to work.
Meanwhile, some of the rules have changed and have expanded tax breaks for health-care and child-care costs, and many employers are adapting their health insurance and other benefits to help families with new needs because of COVID-related life changes. Knowing about the following changes and strategies can help you choose your benefits during open enrollment for 2021:
Get to know your dependent-care flexible-spending account
If you have children, they may be going to school virtually and you may be paying a lot more for child-care expenses – or you may be paying less if you’re working remotely and have more flexible hours than you had in the past. If you or your spouse’s employer offers a dependent-care flexible spending account, this is a good time to recalculate how much to contribute. You can set aside up to $5,000 pre-tax each year (per household) in a dependent-care FSA and you can use the money tax-free to pay for child-care costs for children under age 13 while you and your spouse work (or look for work). The money you set aside in the account reduces your taxable income, but you usually need to use it by the end of the year or you will lose it. It’s hard to predict what your school and child-care situation will look like yet for 2021, but keep in mind you can use the money for a variety of expenses, including day care, a nanny or babysitter, preschool, and summer day camp.
New uses for medical care FSAs and health savings accounts, especially for women
If your employer offers a health-care flexible-spending account, or if you have a high-deductible health insurance policy and are eligible for a health savings account, you should know that you can set aside pre-tax money that you can then withdraw tax-free to pay out-of-pocket medical expenses, including your deductible, co-payments, prescription drugs, and other eligible expenses not covered by insurance. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) expanded the uses of FSA and HSA money: You can now use the money tax-free for over-the-counter medications, such as pain relievers and cough and cold medicines, and for menstrual and feminine hygiene products, too. Since you usually need to use the money in your FSA by the end of the year (or some employers give a grace period to March 15 or let you roll over $500 from one year to the next), knowing you can use it for these regular expenses can help you feel more comfortable setting aside more money in the account to benefit from the tax breaks without worrying that you’ll have too much left over in the FSA.
Look at an HSA’s tax breaks for medical expenses – both now and in the future
A health savings account can be even more valuable than an FSA. Money you set aside in an HSA is either pre-tax (or tax-deductible), grows tax-deferred, and can be used tax-free for eligible medical expenses at any time – either now or in the future. There’s no use-it-or-lose-it rules for HSAs. To qualify, you need to have an HSA-eligible health insurance policy with a deductible of at least $1,400 if you have self-only coverage or $2,800 for family coverage in 2021. You can contribute up to $3,600 in 2021 if you have self-only coverage, or $7,200 for family coverage, plus an extra $1,000 if you’re 55 or older. Many employers contribute to the accounts, too – sometimes $500 to $1,000 for the year. Even though you can use this money tax-free for out-of-pocket medical expenses now, it’s even better if you can afford to keep the money growing in the account for the future. Most HSAs let you invest in mutual funds for the long-term, in addition to a savings account for short-term expenses.
Look closely at your health insurance options
If you or your spouse lost your job in 2020, you may now have a new job with new benefits. Or your employer may have changed some of its health insurance options and costs because of its own financial struggles as a result of COVID. If both you and your spouse have health insurance benefits at work, now is the time to review both options and figure out the best way to coordinate your benefits. It may be most cost-effective for you each to stay on your own employer’s plan, and to cover your children on one of the plans. But one employer may offer better dental or vision benefits, so you may want to sign up the whole family for supplemental benefits with that employer, even if you’re on different health insurance policies. When comparing your options, look at the premiums, deductibles, co-payments for your typical medical expenses, and whether your doctors and medications are covered. Also find out whether the plan is eligible for an HSA.
Consider supplemental insurance
The pandemic made a lot of people appreciate the importance of protecting their family from the unexpected. It’s a good time to take a look at any disability or life insurance benefits that could help your family pay the bills if you become sick or injured and can’t work or if you die early. If you already have some disability coverage through work, find out how much that would pay out and whether you should get supplemental coverage, which is often offered during open enrollment. It’s also a good time to reassess your family’s life insurance needs. Compare the cost of your employer’s plan with buying coverage on your own if you’re healthy.
Take advantage of any 401(k) match
Some employers cut their 401(k) match when their finances were hurting because of the coronavirus, but some are resuming the match if their business has improved. Find out how much your employer will match your 401(k) contributions in 2021, and try to contribute at least enough to get the full match – that’s free money that’s hard to find anywhere else. Even setting aside a small amount every year can grow significantly by the time you retire.
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