Open Enrollment: Getting the Most Out of Your Cafeteria Plan

 No, we’re not talking about your food cafeteria plan at school or work but the Section 125 benefit plan also referred to as a “cafeteria plan” through your employer.  Just like having an array of food choices at a cafeteria, your employer may offer you an array of benefit choices you can choose to participate in on a pre-tax basis. And it is important that you are knowledgeable about which benefits may be “healthy” choices for you financially. 

Some of the menu items that may be available are:

• Group term life insurance
• Medical expense insurance
• Dependent group term life insurance
• Child care
• Dental expense coverage
• Flexible Benefit Plans including Flexible Spending Accounts (Click here to see my first blog on FSA Account “The True Beauty of the FSA”)

The following are a few ways to benefit from your cafeteria plan:

✔ Take advantage of any “automatic” group life insurance - assuming your employer offers you one times your salary at no cost to you. Make sure if you need to select this benefit that you do so.

✔ Although it makes sense to meet with a financial planner to make sure you have the right type and amount of life insurance, securing some group coverage through your employer for yourself and your spouse can be very beneficial, especially if you or your spouse are uninsurable and cannot get a personally-owned insurance policy.

✔ If child care is a benefit offered through your employer, take advantage of this as child care can cost as much as $24,000* per year for families that have multiple children needing care.

✔ Take advantage of dental coverage available to you.  If you are married, compare your dental plan and your spouse’s dental plan to see which one makes the most sense. Or decide if it makes sense to have dual coverage (sometimes this can be problematic so make sure you do your homework).

✔ A flex spending account can be a great way to defer pre-tax dollars for those out-of-pocket medical, dental, orthodontic, and vision expenses including co-pays that are not covered by your insurance.

✔ Cash flow permitting, use the Flexible Spending Account as another “forced savings” tool.  At year end you can submit all of your expenses and utilize the reimbursement to fund big ticket items such as education savings, vacation, or charitable gifts.

✔ Don’t have child care at work? Make too much money to get anywhere near a $6,000 child care tax credit at tax time*? Participate in the dependent care savings account and instead defer the full amount available (pre-tax) for your child care expenses and submit for reimbursement.  For someone in the 25% federal-tax bracket, this means saving about $31 of every $100 of expenses (taking into account the additional savings you receive by avoiding the 5.65% Social Security and Medicare taxes).

✔ Make sure you take the time to plan out how much to defer each year for your Flex Spending and Dependent Care accounts because if you do not use it you lose it!

*The credit amount is determined by multiplying your child-care expenses (the limit for one child is set at $3,000 and for two or more kids the limit is $6,000) by a certain percent, based on income. For example, those making $15,000 can receive a credit equal to 35% of expenses for a maximum tax break of $1,050 for a single child or $2,100 for two or more kids. The credit percentage falls to 20% for families earning $43,000 or more. Most families earning $43,000 and up will be better off with a dependent care account (if available) than claiming the credit.

Feel free to contact us if you have any questions or need help evaluating what your choices under your cafeteria plan may be best for your financial health. And keep an eye on our blog. This is just one in our eight part series helping guide you through the open enrollment process.

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*Source Huffington Post 8/2012:  average annual childcare expense for family with 2 children

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