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Looking for advice on whether it makes sense to accept participation in the Pre-Tax Plan where your employer is authorized to reduce your income as necessary to pay your share of the cost of the employers benefit plan with pre-tax dollars.

Or if it's generally a better idea to waive the pre-tax plan and deduct my premium contributions for the plan after state / federal taxes have been withheld.

Since unused amounts would be forfeited at the end of the plan year, I'm not sure which route to go. So hopefully someone with more experience can give a better explanation as to which would be the better way to go, and why?

Thanks

  • Is it for the US? What kind of plan is it? – littleadv Jan 23 '14 at 5:20
  • Right, sorry forgot to mention that, Country = US, in this case it would be for an Insurance Plan but I'm hoping the advice given could be applied to other instances as well but I'm admittedly ignorant in this area currently, hence the seeking more experienced opinion. – Chris W. Jan 23 '14 at 5:27
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    what plan is it? FSA? HSA? 401K? What's its called, and what are its terms? – littleadv Jan 23 '14 at 5:37
  • FSA is use it / lose it, HSA is not. Still we need Chris to confirm. – JTP - Apologise to Monica Jan 23 '14 at 11:29
  • Do you mean Employees Benefit Plan? – Neuromancer Jan 23 '14 at 11:33
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The pre-tax vs post-tax issue may include more than an FSA. As discussed in What is the difference between pre-tax and post-tax paycheck deductions? it can be the entire cafeteria plan that that can be handled pre-tax or post-tax.

Most people don't want to pay for these benefits post-tax, but in a narrow range of situations such as trying to maximize your social security income it may make some sense to pay for these post tax.

The phrase:

"reduce your income as necessary to pay your share of the cost of the employers benefit plan with pre-tax dollars"

may point to more than the FSA or HSA.

You will have to review all the documents regarding benefits to understand what your options are regarding pre-tax and post-tax.

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To THEAO's point, the devil is in the details. An HSA for an individual has a $3300 limit, the FSA just $2500. The HSA should suggest how it's invested, i.e. an HSA looks like an IRA in the sense that it can be invested in longer term assets. My HSA gives me interest, 2%, and knowing I'll use most of it, I'm not interested in the longer term options. The FSA is just a balance for you to spend, no interest or investing.

The key thing (in my opinion) the FSA is use it or lose it. In 2014, I believe there's the ability to carry just $500 forward in unused money. The HSA was meant for the longer term, and can accumulate with no limit, an investment toward the potential medical expense that might otherwise be hard to pay for.

The fact that your question refers to the possible loss of money implies it's an FSA. In which case, you have to tell them how much you want withheld. Only you can know what your history is for expenses. For us, the co-pays add up quickly, and we (3 of us) were putting in $4000/yr when the limit was still $5000. If you are young, healthy and single, maybe $1000 is a good start, knowing $500 might be rolled over. It's up to your company to approve the rollover to next year, IRS approved it but does not require it.

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