Somewhere between the dental options and the vision upgrade, this year’s open enrollment may include a few decisions that can shape your finances well beyond next year. You might be choosing how much salary to defer into a deferred compensation plan, how much to contribute to an HSA, or whether to pay disability premiums with pre-tax or after-tax dollars.
Each one is a financial decision, even if it comes through HR. Together, they affect your taxable income, your cash flow, and how much you set aside for the years ahead. Many of them stay locked in until next year’s enrollment.
For professionals and executives, open enrollment financial planning starts with weighing those elections against the rest of your financial picture, including your year-round tax strategy, any equity compensation, and your long-term goals.
Which Workplace Benefits Deserve a Second Look at Open Enrollment?
Medical and dental get most of the attention, but the other benefits in your enrollment package can matter just as much to your long-term plan.
Disability insurance is easy to click past, because few of us like imagining an illness or injury that keeps us out of work. But if your employer lets you choose how to pay for it, that choice affects what you would actually receive. Premiums paid with after-tax dollars generally mean tax-free benefits if you ever need them, while premiums paid pre-tax generally mean taxable ones.
Life insurance deserves the same second look. Workplace coverage is often set as a multiple of your salary, a formula that doesn’t account for your mortgage, your children’s ages, or what your family would actually need.
Your elections should also fit the life you’re living now. If you’ve started caring for an aging parent, it’s worth checking whether their care qualifies for a dependent care account. Those caregiving years can also affect your retirement savings in ways that are easy to overlook.
Should You Maximize HSA Contributions This Year?
If you’re eligible for one, a health savings account (HSA) may be one of the most valuable tools in your benefits package. Contributions go in before tax, the money can be invested and grow tax-free, and withdrawals for qualified medical expenses aren’t taxed either. That’s a rare combination of federal tax benefits in a single account.
Many people spend their HSA as they go, on this year’s copays and prescriptions. If your budget lets you cover those costs out of pocket, you can leave the balance invested and build a reserve for later in life, since a longer retirement can mean more years of medical costs. The balance stays yours from year to year, even if you change jobs.
Whether contributing the maximum makes sense depends on your cash flow and the medical costs you expect next year. Before you commit, confirm you’re eligible. That starts with choosing an HSA-eligible health plan, but other coverage, such as a spouse’s flexible spending account or enrolling in Medicare, can affect it too.
How Do Employee Stock Purchase Plans Fit Your Broader Strategy?
If your company offers an employee stock purchase plan (ESPP), it belongs in this review even if its enrollment runs on a different schedule. ESPP contributions come out of the same paychecks as other elections you may be making, like HSA contributions or salary deferrals. And because many plans let you buy company stock at a discount, an ESPP can be a worthwhile benefit.
It’s still worth looking at the whole picture. Your paycheck already depends on this company, and you may hold RSUs or stock options from it too. Each purchase you hold onto adds to that, and over time a meaningful share of your net worth can end up concentrated in a single company’s stock.
It also helps to decide in advance when you might sell shares and diversify, since the timing of a sale can affect how it’s taxed.
When Should Deferred Compensation Elections Be Reviewed?
For executives with access to a deferred compensation plan, this may be one of the most consequential elections of the season. These plans let you set aside part of your salary or bonus now and receive it, along with the income tax bill, in a future year, often one when you expect your income to be lower. You generally have to choose how much to defer before the year you earn the money, so the deadline can land right alongside open enrollment.
One decision deserves particular care: when and how you’ll be paid, since that election is difficult to change later. It helps to picture the life you’ll be living when that money arrives, whether you’re still working, newly retired, or somewhere in between. Keep in mind, too, that deferred compensation works differently from a 401(k). Money in a 401(k) is held separately from the company, while deferred compensation is generally an unsecured promise from your employer, so serious financial trouble at the company could put those dollars at risk.
That’s a lot to weigh, so it’s worth revisiting before every deadline and modeling as part of a tax plan that looks several years ahead.
What Happens If You Miss the Open Enrollment Window?
For most of the elections you make during open enrollment, missing the window means waiting another year to make changes, unless you experience a qualifying life event, such as marriage, the birth or adoption of a child, or a change in employment.
Letting last year’s elections roll forward can feel like the safe option, but not everything carries over. Flexible spending account contributions, for example, often reset to zero if you don’t re-enroll. And the elections that do carry over were built around last year’s income, family, and goals.
It helps to set aside a little time in advance. Block an hour before your deadline, pull up your current elections and a recent pay stub, and make each choice with intention rather than in a rush on the final afternoon.
Make Open Enrollment Part of Your Financial Rhythm
At Treehouse, we believe money is a tool, not a destination. Your benefits package is one of those tools, and open enrollment is your yearly chance to point it where you want to go. With a little open enrollment financial planning each year, your benefits can work alongside your tax strategy, any equity compensation, and the life you’re building outside of work.
If you’d like a second opinion on your elections this fall, reach out to Treehouse Wealth Advisors. We’ll help you coordinate your workplace benefits, any equity compensation, and your tax planning into one plan, ideally before your enrollment deadline arrives.
