medical account - too much vs too little

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Subject Author Date medical account - too much vs too little P.Schuman 03-23-2008  Re: medical account - too much vs too little BreadWithSpam 03-23-2008  Re: medical account - too much vs too little Mark Bole 03-23-2008  Re: medical account - too much vs too little rick++ 03-23-2008
Posted by P.Schuman on March 23, 2008, 5:50 am We have the pre-tax medical dedection signup available each fall. A couple of years back, we projected enough to cover our son's braces, and we scrambled at the end of year to squeeze every dollar out of the account. This year, we didn't foresee any major expenses, so we cut back. Well, yup - I needed to have a crown replaced on a tooth. Our dental coverage was 80% with the remaining 20% out of pocket. If we submit the 20%, it pretty much covers the entire years worth of flex spending. SO - not really thinking this thru yet - is it better to deduct more (not taxed), even if you will not spend it and will loose it at end of year, or deduct less, and have the remaining come out of pocket (taxed) - but not enough for a Sched A deduction. -- ---------------------------------- "If everything seems to be going well, you have obviously overlooked something." - Steven Wright -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by on March 23, 2008, 9:46 am [re: FSA "use it or lose it" pre-tax medical savings] > is it better to deduct more (not taxed), even if you will not spend > it and will loose it at end of year, or deduct less, and have the > remaining come out of pocket (taxed) - but not enough for a Sched A > deduction. Run the numbers. Suppose you have $100 in earnings you are thinking about and your marginal tax rate is 30%. If you put that $100 into the account, but use only $80, you're walking away from $20. But because your marginal tax rate is 30%, if you hadn't put that $100 into the account, you'd have only taken home $70 to spend. So anything up to that first hundred bucks of medical care only costs you $70. With the FSA, you "spent" $70 on $80 worth of medical care regardless of the $20 you walked away from - a savings of $10 (in after! tax money). If you spent only $70 on medical bills, it's a wash. If you spent only $60 on medical bills, you overpaid because you used the FSA. That was all a very verbose way of saing that any money in the FSA which is above (1 - tax rate) is 'free' money that, yes, you'd hate to walk away from, but doesn't cost you anything if you do so. -- Plain Bread alone for e-mail, thanks. The rest gets trashed. No HTML in E-Mail! -- http://www.expita.com/nomime.html Are you posting responses that are easy for others to follow? http://www.greenend.org.uk/rjk/2000/06/14/quoting -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Mark Bole on March 23, 2008, 11:25 am BreadWithSpam@fractious.net wrote: > > [re: FSA "use it or lose it" pre-tax medical savings] > >> is it better to deduct more (not taxed), even if you will not spend >> it and will loose it at end of year, or deduct less, and have the >> remaining come out of pocket (taxed) - but not enough for a Sched A >> deduction. > > Run the numbers. [...] > That was all a very verbose way of saing that > any money in the FSA which is above (1 - tax rate) > is 'free' money that, yes, you'd hate to walk away > from, but doesn't cost you anything if you do so. Include in the tax rate the 7.65% savings of SS and Medicare tax also. -Mark Bole -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by rick++ on March 23, 2008, 6:03 pm Also you could switch to an HSA where theres no time limit. My employer just offered the insurance this year, but had to find our own account administrator. A fee years back they were charging large fees, but there are some no-fee accounts now. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. 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