6 Mistakes To Avoid When Making Your Annual Benefits Choices
Benefits make up roughly 30% of a typical employee’s total compensation, according to the Bureau of Labor Statistics, so a yearly review during open enrollment is well worth your time.
Here are six common mistakes to avoid when you’re reviewing your benefits choices:
Mistake #1: Choosing the wrong health insurance
Health insurance is the most important benefit for most people. A common mistake is not understanding the difference between premiums and deductibles and how that impacts your plan choices. Premiums are fixed monthly payments (think of a subscription), while deductibles are what you pay out of pocket before your insurance kicks in. The out-of-pocket maximum caps what you’d pay in a year, and copays and provider networks can matter almost as much as the premium.
Generally, a higher premium results in a lower deductible, and vice versa. If you anticipate high healthcare usage, a low-deductible plan might suit you better. Conversely, if you’re young and healthy, a high-deductible plan could save you money on premiums.
Also, consider your family’s needs. If you have children or other dependents, make sure they’re covered under your plan and understand how much that will cost you. Similarly, if you have a chronic health condition, choose a plan that covers your medications and treatments.
Mistake #2: Not utilizing health care spending accounts
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are incredibly effective ways to save on medical expenses, but only if you actually enroll and use the funds.
HSAs, coupled with high-deductible health plans, offer triple tax savings: tax-deductible contributions, tax-free earnings growth, and tax-free withdrawals for qualified medical expenses.
FSAs are employer-owned savings accounts with similar tax advantages. However, FSAs are “use it or lose it” accounts, requiring you to spend all your contributions by the end of the plan year, though some plans allow a limited carryover or grace period.
If you’re eligible for an HSA or FSA, consider signing up. Depending on your tax bracket and how much you contribute, these accounts can reliably reduce medical expenses by 10% to 30%.
Mistake #3: Not maximizing your 401(k) plan
A 401(k) is a tax-advantaged retirement savings plan that many employers offer. Traditional 401(k) contributions are tax deductible up to an annual limit, and the investments in your plan grow tax-deferred. A Roth 401(k) is similar, but contributions are made after tax, and qualified withdrawals in retirement are tax-free. Compared to individual options like an IRA, a 401(k) has a much higher annual contribution limit.
If your employer offers matching contributions, even better. Matching contributions are essentially free money, so make sure you’re contributing enough to get all the available matching dollars. For most people, capturing the full match is one of the best returns you can get on your money. Check your plan’s vesting schedule, since you may need to stay with your employer for a set period to keep the matching dollars.
Mistake #4: Not making changes
As your life changes, so should your benefits choices.
During open enrollment, review your benefits to make sure they meet your needs. If you’ve experienced significant life changes, like marriage, divorce, or childbirth, you may need to revise your benefits. A qualifying life event can also open a special enrollment window outside of open enrollment, so don’t wait if something big happens.
For instance, if you’re getting married, you might want to add your spouse to your health insurance plan. If you’re having a child, you may want to consider a different health insurance plan that better fits a growing family.
Even without major life changes, it’s still advisable to review your benefits choices annually. You might find new benefits available or save money by switching to a different plan since it’s not just you that changes, your benefits options do too.
Mistake #5: Ignoring “smaller” benefits
While health insurance and 401(k) plans get the most attention, most employers offer other benefits, such as dental and vision insurance, life and disability insurance, paid time off, financial wellness programs, and employee discounts.
It’s important to consider all your benefits choices, not just the major ones. For example, if your employer offers a gym membership subsidy, it could lower what you pay for a membership you’d buy anyway. Perks like this are a great way to save money on things you already spend money on. Don’t ignore them!
Mistake #6: Getting caught in the HSA eligibility trap because of a spouse’s FSA
A standard (general purpose) healthcare FSA can reimburse expenses for the account holder and their spouse, which makes it disqualifying coverage for HSA purposes. If your spouse has one, neither of you can contribute to an HSA, even if you’re enrolled in an HDHP.
This applies even if your spouse’s health insurance doesn’t cover you. Their medical insurance plan can be employee-only and it still counts, because the FSA is a separate benefit that in almost all cases also covers the spouse. Spending the balance down to zero doesn’t fix it either, since you’re still covered for the rest of the plan year.
To avoid the trap, talk with your spouse before enrolling and compare both employers’ benefits. If one of you wants an FSA, a limited purpose FSA (dental, vision, and preventive care only) won’t affect HSA eligibility. If you’ve already made ineligible contributions, work with your HSA provider to withdraw them before the tax filing deadline to avoid a 6% additional tax.
It’s important to consider all your benefits choices, not just the major ones. For example, if your employer offers a gym membership subsidy, it could lower what you pay for a membership you’d buy anyway. Perks like this are a great way to save money on things you already spend money on. Don’t ignore them!
Originally published in 2023 this was last updated in 2026.