What Does Open Enrollment Mean for Your Finances?

Choosing the right benefits during open enrollment has a lasting impact on your financial well-being. Health insurance, retirement contributions, and other employer-sponsored benefits shape your expenses and savings for the year ahead. Making informed decisions helps you avoid unnecessary costs and maximize available perks.

Understanding open enrollment requires attention to deadlines, employer contributions, and tax implications. Overlooking key details could lead to higher out-of-pocket expenses or missed savings opportunities.

Eligibility Criteria

Not all employees qualify for every benefit. Eligibility depends on employment status, hours worked, and tenure. Full-time employees typically have access to more benefits, while part-time or temporary workers may have limited options. Some employers impose waiting periods, requiring new hires to complete a set number of days or months before becoming eligible.

Family members can often be included, but rules vary. Spouses, children, and sometimes domestic partners may qualify, though employers may require proof of relationship, such as marriage or birth certificates. Some companies impose spousal surcharges if an employee’s spouse has access to coverage through their own employer but chooses the employee’s plan instead.

Age restrictions apply to certain benefits. Under the Affordable Care Act, dependent children can remain on a parent’s health insurance plan until age 26. Other benefits, such as life insurance or disability coverage, may have different age-based limitations. Voluntary benefits like health savings accounts (HSAs) or flexible spending accounts (FSAs) have specific eligibility requirements based on tax regulations and employment status.

Deadlines and Payment Schedules

Open enrollment periods vary by employer but typically occur once a year and last a few weeks. Missing this window means waiting until the next enrollment period unless a qualifying life event occurs, such as marriage, childbirth, or loss of other coverage. Employers notify employees of deadlines through emails, internal portals, or printed materials.

Once benefits are selected, payroll deductions begin according to the employer’s schedule. Health insurance premiums, retirement contributions, and other deductions are spread over each pay period. Some benefits, such as FSAs, require employees to estimate annual expenses in advance since contributions are fixed for the year and cannot be adjusted without a qualifying event.

Certain benefits have annual contribution limits set by federal regulations. In 2024, the IRS limits employee contributions to a 401(k) plan at $23,000, with an additional $7,500 catch-up contribution for those aged 50 and older. HSA contribution limits are $4,150 for individuals and $8,300 for families. Understanding these limits helps employees maximize tax advantages while ensuring deductions stay within allowable thresholds.

Employer Contributions

Companies often subsidize benefits to attract and retain employees. For health insurance, businesses typically cover a portion of the monthly premium. According to the Kaiser Family Foundation’s 2023 Employer Health Benefits Survey, employers covered an average of 73% of premiums for family coverage and 83% for individual plans. Some companies also contribute to dental and vision insurance, though at lower percentages.

Many employers offer matching contributions for retirement plans like 401(k)s. A common structure is a dollar-for-dollar match up to a certain percentage of an employee’s salary, often 3% to 6%. For example, if an employee earning $60,000 contributes 5% ($3,000), an employer with a 5% match would add another $3,000. Some plans use a tiered structure, such as matching 100% of the first 3% contributed and 50% of the next 2%, encouraging employees to save more. These contributions are often subject to vesting schedules, determining how long an employee must stay with the company before fully owning the matched funds.

HSAs and FSAs may also receive employer contributions. Companies that offer HSAs often provide seed money to encourage participation, with amounts varying by plan. For instance, an employer might contribute $500 for individual coverage or $1,000 for family coverage. Unlike FSAs, HSA funds roll over annually, making them a valuable long-term savings tool when supported by employer contributions.

Tax Considerations

Open enrollment decisions affect both paycheck deductions and overall tax liability. Pre-tax contributions to health insurance, commuter benefits, and dependent care FSAs reduce taxable income. For example, an employee earning $70,000 who allocates $2,750 to a dependent care FSA—the maximum allowed in 2024—lowers their taxable income to $67,250, potentially saving hundreds in taxes depending on their bracket.

Employer-sponsored life insurance also has tax implications. The IRS allows up to $50,000 in group-term life insurance coverage as a tax-free benefit. If an employer provides coverage exceeding this threshold, the excess amount is considered imputed income, meaning employees must pay taxes on its value.

Long-term disability insurance has tax consequences depending on how premiums are paid. If premiums are deducted pre-tax, any future disability benefits received are taxable income. If premiums are paid with after-tax dollars, benefits remain tax-free. Employees must weigh immediate tax savings against potential future liabilities when selecting coverage options.

Consequences for Missed Enrollment

Failing to enroll during the designated period can lead to financial setbacks. Health insurance is often the most significant concern, as missing the deadline typically means waiting until the next enrollment period unless a qualifying life event occurs. Without coverage, individuals may face high out-of-pocket medical costs, and those without alternative insurance options could be subject to penalties in states that mandate health coverage, such as California and New Jersey.

Retirement savings can also be affected. Employees who do not elect to contribute to a 401(k) plan miss out on potential employer matching contributions, forfeiting free money. Additionally, some benefits, such as HSAs or dependent care FSAs, require annual enrollment. Missing the deadline means losing access to tax-advantaged savings opportunities, increasing overall taxable income. Employees should review options carefully and set reminders to avoid missing out on valuable financial benefits.