"P.Schuman" <pschuman_no_spam_me@[EMAIL PROTECTED]
> writes:
[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.
--
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