Open Enrollment: 3 Tax-Saving Moves to Make

Conserving cash is the key to financial well-being, especially when times are tough. One easy way to gain some ground is to take advantage of tax-saving opportunities at your job. Right about now is when open enrollment season begins at many employers. During this time, you can sign up for several tax-saving deals for the upcoming year.

So before you throw out your employer's thick open-enrollment information packet, take some time to consider the following three options. Not only can they increase your cash flow, but they can do so with little to no pain. 

The advantage of a health care flexible spending account (FSA) arrangement is that it allows you to pay for all or a portion of your 2009 out-of-pocket medical costs with pretax dollars. By signing up, you elect to contribute a designated amount of next year’s salary to your personal FSA. Those contributions will be withheld from your 2009 paychecks and you can use the money to reimburse yourself for uninsured medical expenses (such as insurance deductibles and co-payments, dental care, prescriptions, vision care, and so forth), as well as your share of premiums for company-sponsored group health insurance.

The total amount withheld from your paychecks will be treated as a salary reduction for federal income tax, Social Security tax and Medicare tax purposes (usually for state income tax purposes, too). And reimbursements from the FSA are tax-free to you. That’s the same as getting an income tax deduction combined with a reduction in your Social Security and Medicare tax withholding. Pure and simple, it’s extra cash in your pocket.

In order to reap these permanent tax savings, however, you need to enroll in the FSA program. Typically, employers only offer the option to sign up once or twice a year. So it's best to act now. (Note: Many companies place an annual lid on the amount each employee can contribute to a health care FSA, often $3,000.)

Warning: The FSA deal carries a “use-it-or-lose-it” rule. If you fail to incur enough qualified health-care expenses to drain your FSA each year, then any leftover balance reverts to the employer. In other words, you cannot carry over unused 2009 contributions to 2010. However, your company may allow a 2 1/2-month grace period to ease this concern. If so, you would have until March 15, 2010, to incur expenses that can be reimbursed by your 2009 contributions.

In addition to health-care expenses, many FSA plans are set up to reimburse employees for qualified dependent care expenses, too. These accounts cover costs to care for a dependent child under the age of 13, a disabled spouse, or a disabled person for whom you provide over half the support. The dependent-care expenses must be necessary in order for you to work. The annual amount contributed for dependent-care expenses cannot exceed $5,000, or $2,500 if you are married and file separately from your spouse. If you’re married and file jointly, the $5,000 limit represents a combined maximum for you and your spouse.