Open enrollment, a period typically associated with health insurance adjustments, offers a broader opportunity to delve into your employee benefits landscape, with a particular focus on those facets that impact your retirement planning. This annual event, often occurring in the fall and spanning two to four weeks, provides employees with a unique window to either initiate or amend their chosen benefits package from their employer.
Amidst the myriad of decisions, you’ll need to make during open enrollment, it’s vital not to overlook the crucial aspects of your retirement. To guide you through this intricate terrain, here’s an extended checklist of considerations:
#1. Comprehensive Review of Current Retirement Contributions:
Start your open enrollment journey by reviewing your contributions to retirement accounts, such as your IRA and 401(k) plan. In the fiscal year 2023, these contribution limits stand at:
- A maximum of $22,500 for 401(k) contributions, with an added provision allowing individuals aged 50 or older to contribute an extra $7,500.
- For IRAs, the ceiling is set at $6,500, although individuals aged 50 or older have the privilege of contributing up to $7,500.
Be aware of potential changes in these limits for the coming year. If you’re not currently maximizing your contributions, it’s advisable to contemplate an incremental increase, even if it’s just 1% of your salary. Financial experts, such as Mike Gouldin, Senior Vice President of Retirement and Wealth at OneDigital, advocate for striving to achieve an annual savings rate that falls within the 10% to 15% range of your income.
#2. Thoughtful Consideration of Old 401(k) Accounts:
Do you have dormant 401(k) accounts from previous employers languishing in the shadows? The open enrollment period can offer an ideal window to consolidate these old accounts into your current employer’s plan. Many unwittingly leave behind unattended balances in these previous 401(k)s, and accessing these funds can prove to be a difficult endeavor.
#3. Beneficiary Updates:
Look closely at your beneficiaries listed on your retirement accounts. If there have been pivotal changes in your personal life over the past year, such as the addition or loss of a spouse, child, or other beneficiaries due to events like birth, death, marriage, or divorce, you must amend your beneficiary designations accordingly. Your choice of beneficiaries plays a pivotal role in determining the distribution of your 401(k) assets in the event of your passing, underscoring the significance of keeping this information current.
#4. Health Savings Account (HSA) Elections:
Assess whether it is prudent to alter your health savings account (HSA). Life events like marriage, childbirth, or shifts in your financial circumstances may prompt a need to modify your pretax contribution amounts.
For those who do not currently possess an HSA, this might be an opportune moment to consider opening one, mainly if your employer offers this benefit and you are enrolled in a high-deductible health plan. HSAs serve as a versatile tool, allowing individuals to allocate funds for both immediate healthcare expenses and future retirement medical costs, provided they fall within the purview of “qualified medical expenses” as defined by the Internal Revenue Service. Notably, HSAs also offer an advantageous avenue to mitigate tax liabilities.
#5. Review Asset Allocation:
In addition to scrutinizing your retirement accounts, it is prudent to expand your focus to encompass other investments that might be accessible through your employer, such as employee stock ownership plans (ESOPs) or other financial instruments present in your benefits portfolio.
With this broader perspective, you can evaluate your overall asset allocation, which pertains to how your retirement portfolio is diversified across various assets like stocks, bonds, and cash. Alignment with your risk tolerance and long-term financial objectives is paramount. If your current allocation does not align, it is advisable to make the necessary adjustments to rebalance your portfolio accordingly.
#6. Examination of Your Finances:
Beyond employee benefits, seize this moment to undertake a comprehensive appraisal of your financial situation. This may encompass a broad spectrum of considerations, including the status of your child’s college 529 savings plan, a reevaluation of your budget, and the contemplation of scheduling a consultation with a financial advisor. These measures contribute to a more comprehensive understanding of your financial landscape and facilitate the development of a coherent financial strategy aligned with your broader objectives.
In summary, open enrollment, often synonymous with health insurance decisions, extends its reach to encompass a multifaceted evaluation of your retirement planning. By meticulously navigating this extended checklist, you can embark on a journey of informed decision-making aimed at securing your financial future and ensuring a comfortable retirement.