posted on October 31, 2005 08:20:12 AM new
If you are talking about a 401K plan then, yes, they are a good thing.
Your taxable income is reduced, and you can deduct the amount you have taken out when you do your taxes. Your 401K isn't taxed until you start withdrawing from it and, by the time you do you will be in a lower tax bracket anyway.
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"Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we." -- George W. Bush
posted on October 31, 2005 09:03:23 AM new
The one pre-tax deduction you may want to avoid, and only avoid it IF you itemize your deductions (such as owning your own home and deducting a portion of the interest paid) is the one where you set aside a portion of money for other health expenses - can't think of the name of it right now - but it is where you can recoup your copays and additional medical expenses that are not covered by your health insurance.
If you take this as a pre-tax deduction on a payroll check, you cannot use these expenses on your itemized deductions at tax time.
If you do not itemize, this is a good deduction to opt in to if it is available.
~~~~~~~~~~~~~~~~~~ Caroline
posted on October 31, 2005 10:11:42 AM new
carolinetyler, could you please bring me up to spped as to how the pre=tax medical deduction is a good idea if you don't itemize? Are you not still taxed on that income? (I really don't know) A link or two to info would be great. TIA
posted on October 31, 2005 09:30:17 PM newThe one pre-tax deduction you may want to avoid, and only avoid it IF you itemize your deductions (such as owning your own home and deducting a portion of the interest paid) is the one where you set aside a portion of money for other health expenses
Very, very bad advice. Caroline is correct about if you take advantage of the pre-tax "flex" benefit, you cannot deduct it from your taxes. However, she is very wrong for about 99% of the US population as far as qualifing for the deduction on your tax return.
The problem with not taking advantage of the flex plan is you still cannot deduct it from your itemized deductions unless your total medical expenses are more then 7.5% of your adjusted gross income. Most people do not have medical expenses that equal more than 7.5% of their adjusted income making the flex plan very much beneficial to them. The flex plan allows you to set aside a certain dollar amount for medical expenses as well as child care expenses. The only true bad side to the program is it is a use it or lose it program. Meaning if you set a side $1000 for the program and you only use $500 of it, you lose the other $500 for the year. Most people will pay for their insurance premiums with the program and leave the rest of the expenses out of the program. The premiums are generally fixed and a given. Prescription drugs are also covered under the plan and if you are using maintenance drugs, it is a very good plan as those expenses are also generally fixed. For healthy people that don't need to take daily medications, it is far better for them to use the flex pre-tax program to pay for premiums only.
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Alive in 2005
posted on November 1, 2005 07:17:19 AM new
New kind of 401(k) available next year
Account taxes money on way in, not on withdrawal
By MARY DALRYMPLE
Associated Press
WASHINGTON - Employees next year could be offered the opportunity to stash away some of their retirement savings in a new type of account that may reduce their taxes in the long-run.
The new Roth 401(k) requires that workers pay tax on earnings before setting aside the money for retirement. In exchange, the money grows and can be withdrawn tax-free. It's modeled on the Roth individual retirement account, which works the same way.
It's the opposite of the 401(k) accounts currently used. Those let employees save and invest some of their salary before paying tax, but taxes come due when the money is withdrawn in retirement.
A few companies will be prepared to offer the new Roth 401(k) accounts to their workers when the law makes them available on Jan. 1. More plan to roll the accounts out sometime later in 2006. The Internal Revenue Service still has some regulations to issue, and companies need to work on account administration.
"Getting the whole system up and running requires some time," said Anne Waidmann, a manager in the Washington, D.C., office of Pricewater-
houseCoopers who tracks employee benefit and compensation issues.
The new accounts differ from current workplace retirement savings accounts in their taxation, but many other rules apply to both equally.
Employees can only put a certain amount of money in either or both types of 401(k) retirement accounts each year. Next year, the limit will be $15,000, or $20,000 for workers age 50 or older.
Any matching contribution made by an employer will be deposited in a traditional 401(k), not a new Roth 401(k) account.
It's also a temporary savings incentive that will disappear from the law after 2010 unless lawmakers decide to extend the accounts.
Who could benefit from the new retirement opportunity? The accounts are best for workers who pay taxes at a lower rate now than they will in retirement, but few taxpayers can say for certain whether their tax rates will go up or down.
Stephen Utkus, director of the Vanguard Center for Retirement Research, said that means most workers won't lose by diversifying their savings and putting some money in each type of account.
"I'm not sure where tax rates are going, you're not sure where tax rates are going," he said.
"You may be worried that tax rates could go up in the future, so hedge your bets."
Caroline