It's that time again -- and I'm not talking about tailgate parties or Thanksgiving turkey. For millions of American workers, November is the month to sign up for the company benefits you want next year. By law, your elections must be made before the new year starts. Don't toss that information from your human resources department onto the kitchen counter with the junk mail. This is too important to take casually.
First of all, the menu of benefits your employer is offering in 2004 might be different than this year's. And the individual benefits themselves could be changing. For instance, in order to hold down skyrocketing health insurance premiums, your employer might have changed insurance carriers. In some cases, the amount of your deductible or co-payment could be going up. You'll definitely want to adjust your benefits if your marital status has changed or if you have more -- or fewer -- dependants, such as children or elderly parents.
Part of the benefits package at many employers is something called a "Flexible Spending Account." This is essentially a bank account which you contribute to through deductions which come out of your paychecks on a BEFORE-tax basis. You can tap your FSA to pay for a variety of out-of-pocket expenses, such as co-payments for office visits to the doctor and prescription medicine.
So, if your health insurance deductible is going up next year, you'll want to consider increasing the amount you set aside in your FSA. But don't overdo it. The rule with a Flexible Spending Account, is "use it or lose it": you can't carry over to next year any balance left in this year's account. Money set aside must be used in the same year it goes into the account.
While we're on the subject, call your H.R. department and check on your balance in this year's Flexible Spending Account. If you still have money in it this late in the year, think about scheduling that elective surgery or getting your child braces before 2003 is over so you can use the remaining money.
Martha Priddy Patterson, a director at Deloitte & Touche, says that while you want to maximize the amount of expenses you can pay with pre-tax dollars, you also want to make sure you're not losing money by failing to spend as much as you've contributed to your FSA. Take a half hour to roughly estimate how much your out-of-pocket costs were this year. Do you expect them to increase next year, say, when the new baby arrives?
Does your new health plan have a higher deductible? Then think about increasing your 2004 FSA contribution. Adjust it downward if you anticipate lower medical/child care/life insurance costs next year.
This year the IRS expanded the list of tax-deductible expenses FSA money can cover. These include home exercise equipment and the cost of a gym club membership -- provided they are prescribed by a doctor to treat obesity. You can now also use your Flexible Spending Account to reimburse yourself for the cost of NON-prescription medications. But don't think this means you can stock up on cough medicine, aspirin and fungus cream and figure you'll cover the cost with your pre-tax FSA dollars. Over- the-counter drugs eligible for FSA reimbursement must also be (surprise) prescribed by a doctor.
Priddy Patterson cautions that even though the law allows Flexible Spending Accounts to cover these expense, this doesn't mean YOUR plan does. She predicts a number of companies will choose NOT to allow employees to tap their FSA for non-prescription drugs because "they don't want to get into a debate about whether the aspirin you submitted a claim for is really being used to treat your back pain or because you just want to have it in the house. Did you buy that calcium supplement because your doctor specifically told you to take it to prevent osteoporosis or because you think it's a good thing for you to do?" The point is, make sure you're clear on what items YOUR plan allows to be reimbursed with FSA money.
In addition to health and dependant care benefits, review what you're contributing to your company retirement plan -- especially if your employer "matches" your contribution. Starting next year, everyone who has a 401(k), 403(b) or 457 plan can contribute up to $13,000. Contribution limits for SIMPLE plans also go up. At the very least, aim to have enough deducted from your paycheck so you receive the maximum match for which you're eligible. This is FREE money. Shame on you if you leave any on the table!
Priddy Patterson has a reminder for anyone who will turn 50 next year: Thanks to the "Catch-up Contributions" introduced by the 2001 Tax Act, in 2004 you can sock away an ADDITIONAL $3,000 in your 401(k), 403(b) or 457 -- for a total of $16,000. While that might sound like more than you can afford, keep in mind that the government essentially subsidizes your retirement plan contributions: whatever you contribute reduces your taxable income and lowers your income tax bill. For instance, if you are in the
25% income tax bracket, you'll save $1,000 in taxes for every $4,000 you contribute to your plan. If you want to set aside more money in your retirement plan next year, you need to adjust your withholding.
The Catch-up Contributions are another example of a benefit your company may -- but does not have to -- provide. If your employer doesn't allow for this, gather all your over-50 co-workers and stage a sit-in at your Human Resources Department. Baby boomers have always been good at organizing for a cause. Catch-up Contributions cost an employer nothing, so it's nuts for a company to not allow this.
Hope this helps!
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