How to Optimize Your Employee Benefits During Open Enrollment

Why Your Employee Benefits Matter for Your Financial Picture

Your employee benefit elections can have a big impact on other aspects of your financial life, especially if you’re a high earner. For example, the amount you pay in health insurance premiums can impact how much you can save in other accounts. Having the right amount of disability insurance can help protect your savings in an emergency. And your 401(k) deferral percentage can greatly impact your future assets available to support your retirement goals. The same is true for 403(b) or 457 plan contributions.

It’s important to carefully consider your options each year to make sure your elections continue to meet your needs as your life evolves over time. Your company’s annual open enrollment period is a great reminder to do so. The following tips can help you optimize your employee benefits during open enrollment.

How to Optimize Your Benefits During Open Enrollment

Open enrollment isn’t just an HR exercise — it’s a key part of your overall financial plan. Reviewing your benefits with a strategic lens can help you optimize tax advantages, protect your family and make progress toward your long-term goals.

Attend benefits meetings

Employee benefits meetings can be a great way to learn about changes to your options. They also provide an opportunity to ask questions and hear responses to your coworkers’ questions, some of which you may not have thought to ask. These sessions often cover key topics like health insurance plan changes, HSA and FSA updates, and changes to retirement plan contribution limits.

Consider how your financial situation and goals have evolved

How has your life changed since last year’s open enrollment period? Have you gotten married, had a baby, lost a loved one, gotten divorced, experienced a significant medical event or refocused on saving for retirement? All these changes can impact the type and level of benefit coverage you need to protect your loved ones, progress toward your goals and optimize your financial life.

These qualifying life events (also known as QLE) often allow you to make changes outside the standard open enrollment window, so it’s worth understanding how your circumstances have shifted.

Give yourself plenty of time

A common mistake made by many employees is waiting until the last minute to enroll in benefits. However, it’s important to take time to carefully consider your options and choose the benefit coverage that makes the most sense for your family. Talk with your wealth manager about how your benefit elections may impact other aspects of your financial life, and choose options that are in line with your overall financial plan. Take advantage of the full enrollment period to compare plans and ask questions.

Consider your medical needs

If you or a dependent experienced any medical changes over the past year, it’s important to consider whether it makes sense to modify your health insurance coverage. For example, a chronic illness, disease diagnosis, pregnancy or other significant health event may substantially increase your medical expenses for the year, so it may make sense to pay more in monthly premiums for additional coverage. On the other hand, maybe your family members had few medical expenses last year and you determine it makes more sense to participate in a high-deductible health plan (HDHP).

Verify coverage for your preferred medical providers

Most insurance companies provide better coverage for in-network medical providers, yet these providers can change from year to year. If you have preferred doctors and hospitals, be sure to confirm they remain covered by your insurance company. Check your insurance provider’s online portal, call your insurance company directly or contact your doctor’s office to verify ongoing coverage. This simple step can save you thousands in out-of-pocket costs if a preferred provider has moved out of network.

Understand FSAs and HSAs: Two Powerful Tax-Advantaged Accounts

Flexible savings accounts (FSAs) and health savings accounts (HSAs) are commonly offered by employers as part of their employee medical benefits. Both types of accounts allow you to set aside pre-tax money to cover future healthcare expenses; however, there are some important differences between these two types of accounts. Understanding these distinctions is critical to maximizing your tax savings during open enrollment.

FSA: Flexible spending account

An FSA (also known as a medical FSA or healthcare FSA) may be available as an optional employer-sponsored benefit. If offered by your employer, you must enroll during the annual open enrollment period.

FSA contribution limit and rules

• Contribution limit – $3,400 per individual (2026)

• Rollover eligibility –Up to $680 can be carried over to the next year, based on plan rules. Any unspent funds are forfeited at the end of the year.

• Portability –FSA assets are owned by your employer. If you have a balance in the account when you change employers, you forfeit the funds.

• Withdrawal rules –You can use the full amount of your annual plan contribution, even if you haven’t yet contributed the full annual amount.

• Eligible expenses –These include copays, deductibles, prescriptions, and certain medical devices and supplies.
  

HSA: Health savings account

HSAs are only available to those who are primarily covered by a high-deductible health insurance plan (HDHP).

HSA contribution limits and rules

• Contribution limits – $4,400 per individual or $8,750 per family, with a $1,000 catch-up contribution for those age 55 and older (2026)

• Rollover eligibility –HSAs can be a great way to save for medical expenses in retirement, because assets can be rolled over from one year to the next, and there’s no deadline for withdrawing funds.

• Portability –You ownHSA assets, and you can bring them with you when you change employers. You can also elect to roll over your HSA assets to a different HSA provider.

• Withdrawal rules – You can only withdraw assets currently held in the account.

• Investment Options – Many HSAs allow investment of funds beyond a cash threshold, offering growth potential.
  

Dependent care FSA

If you have children or qualified dependents, a dependent care FSA allows you to set aside up to $7,500 per year (or $3,750 if married filing separately) in pre-tax dollars in 2026 to pay for childcare, preschool, and daycare (for children under age 13) as well as eldercare expenses. Doing so can result in significant tax savings if you have substantial dependent care costs. Like medical FSAs, dependent care FSAs operate on a use-it-or-lose-it basis, so estimate your expenses carefully.

Your wealth manager can help

Your wealth manager can help you decide whether it makes more sense to contribute to an FSA, an HSA, a dependent care FSA or a combination of all three, based on your specific healthcare needs and long-term goals.

Diversify Your Retirement Savings

If not carefully managed, taxes can have a notable impact on your income during retirement, particularly for those with higher earnings. However, a smart retirement savings strategy implemented throughout your working years can provide you with the flexibility you need to establish a tax-efficient retirement withdrawal strategy. Your company’s annual open enrollment period offers a great opportunity to reevaluate your retirement savings strategy.

One particularly effective way to minimize your tax exposure in retirement is by saving in a variety of accounts with different tax characteristics, including the following.

Tax-deferred accounts (taxed as ordinary income)

Tax-deferred accounts allow your contributions and earnings to grow without annual taxation, but distributions in retirement are taxed as ordinary income. These include:

• 401(k)/403(b) – These are traditional employer-sponsored retirement plans with 2026 contribution limits increasing to $24,500 (or $32,500 with catch-up contributions for those age 50+).

• 457 Plan – These are available to government (and some nonprofit) employees.

• Traditional IRA – These have a 2026 contribution limit of $7,500 (or $8,600 with catch-up contributions for those age 50+).

• SEP-IRA and SIMPLE IRA – These are available to self-employed individuals and small business owners.

• Defined Benefit (Pension) Plans – These are traditional employer-sponsored pensions.

• Social Security Benefits – These are partially taxable, depending on income.
  

Taxable accounts (gains taxed at capital gains or ordinary income rates)

Taxable accounts have no contribution limits and offer flexibility, but investment gains and dividends are subject to taxation. These include:

• Bank accounts – These include checking and savings accounts; interest is taxed as ordinary income
• Nonqualified investment accounts – These include stocks, bonds, certificates of deposit (CDs), mutual funds and exchange-traded funds (ETFs)
• Brokerage accounts – These are individual investment accounts outside of retirement plans.
• Taxable bonds – These are corporate and government bonds held outside retirement accounts.
  

Tax-free accounts (no tax on distributions)

Tax-free accounts offer the most favorable tax treatment, with no taxes owed on qualified distributions. These include:

• Roth IRAs – These are individual retirement accounts funded with after-tax dollars.
• Roth 401(k)s – These are employer-sponsored retirement plans with after-tax contributions.
• Roth 403(b)s – These are available to nonprofit and government employees.
• Municipal bonds – These are tax-exempt bonds issued by state and local governments.
• Certain types of life insurance – These include life insurance cash value in some contexts.
• Social Security benefits – These are potentially tax-free, depending on income level.
  

Building a tax-diversified retirement portfolio

Having assets with a variety of tax characteristics provides you with added flexibility to reduce your tax exposure throughout various income and market conditions in retirement. For example, during high-income years, you might prioritize withdrawals from Roth accounts. During lower-income years, you could harvest capital losses in taxable accounts or draw from tax-deferred accounts while staying in a lower tax bracket.

This tax diversification strategy allows you to implement a tax-efficient retirement withdrawal strategy that adapts to changing circumstances. Your wealth manager can help you optimize the tax diversification of your retirement savings and help ensure you’re contributing to your employer-sponsored retirement plan in the most efficient manner.

Review and Update Your Beneficiary Designations

The challenge with beneficiary designations is that you typically designate them when you first open an account, such as your employer-sponsored retirement plan, and once the account is up and running, it’s easy to forget about them. However, what many people don’t realize is that beneficiary designations take precedence over wills. This means even if you recently updated your will and your beneficiaries are decades old, assets in beneficiary-designated accounts will be distributed to the named beneficiary. This can be especially problematic if the beneficiary is an ex-spouse or estranged family member.

Why beneficiary designations matter

Beneficiary designations override your will and state intestacy laws. If your beneficiary designations are outdated — perhaps naming an ex-spouse or a beneficiary who’s passed away — your assets may not go where you intend, regardless of what your will says. Additionally, beneficiary-designated accounts bypass probate, which can be a benefit — but only if your designations are current and accurate.

When to review your beneficiary designations

Financial institutions rarely remind account holders to update their beneficiary designations, which means it’s your responsibility to remember to update them as your life and financial situation evolve over time. Your annual benefits enrollment period can be a great reminder to review your beneficiaries and make any necessary updates to the following accounts.

Review beneficiaries for:

• Retirement accounts – 401(k), 403(b), 457 and other profit-sharing plans; traditional IRAs; Roth IRAs; SEP IRAs and SIMPLE IRAs

• Life insurance policies – Term life, whole life, universal life and variable universal life insurance

• Other employer-sponsored plans – Stock options, restricted stock units (RSUs), deferred compensation plans and defined benefit (pension) plans

• Health savings accounts (HSAs)
  

Update your beneficiary designations after major life events

Significant life changes — such as marriage, divorce, the birth of a child or the death of a family member — should prompt you to review and potentially update your beneficiary designations. Don’t wait for the annual open enrollment period if a major event occurs; update your designations as soon as possible.

Evaluate Your Disability Insurance Coverage

While health insurance and retirement savings get much of the attention during open enrollment, many employees overlook their disability insurance coverage. Yet disability insurance is a critical component of your financial safety net.

Short-term disability insurance typically replaces a percentage of your income (usually 50%-70%) for a limited period (typically 3-6 months) if you’re unable to work due to illness or injury. Long-term disability insurance kicks in after short-term benefits expire and can provide income protection for months or years, depending on your plan and the nature of your disability.

As a high earner, review whether your employer’s disability insurance coverage adequately replaces your income. Many employer-sponsored long-term disability plans include monthly benefit caps that may not fully protect high-income earners. If you’re significantly underinsured, discuss supplemental individual disability insurance (IDI) with your wealth manager.

Create a Timeline for Your Benefits Decision

To make the most of your open enrollment period, consider following this timeline:

• 4-6 weeks before enrollment closes – Review your current coverage and identify any changes needed based on your family’s situation and healthcare needs.
• 2-3 weeks before enrollment closes – Attend employee benefits meetings and gather comparison materials for different plan options.
• 1 week before enrollment closes – Consult with your wealth manager or financial advisor about how your benefit elections align with your broader financial strategy.
• Before the final deadline – Complete your enrollment in all benefit options you wish to select.
• After enrollment closes – Request confirmation of your elections and update your personal records.
  

Need Help Optimizing Your Financial Life?

Your employee benefits are just one piece of a comprehensive financial strategy. At Creative Planning, we support clients by helping to ensure all aspects of their financial lives are working together to achieve their goals. Whether you’re evaluating FSA vs. HSA options, optimizing your 401(k) deferral or building a tax-efficient retirement withdrawal strategy, our team can help. Please schedule a call to learn more.