Are You Leaving Money On The Table? Review Your Benefits!

We recently received some new employee benefits at work so we had a meeting to go over these new benefits as well as are old ones. I think that there are two benefits that need to be highlighted due to the incredible benefits. These are:

1) 401k plans
2) Section 125 plans

Whenever you contribute money to a 401k plan or section 125 plan, it is like you didn't earn it for tax purposes. Suppose you have a taxable income of $50,000 and you contribute $10,000 to your 401k plan and $5,000 to your section 125 plan. For tax purposes, the government only thinks you earned $35,000. If you are in the 25% tax bracket, you will pay tax of $12,500 ($50,000 x 25%) on the $50,000, but if you contributed the money to the 401k and 125 plans, you would pay tax of only $8,750 (35,000 x 25%). That is a savings of $3,750 in taxes!!!

Most of us are familiar with 401k plans. But section 125 plans are a little more rare. Another name for section 125 plans are Flexible Spending Accounts. What flexible spending accounts allow you to do is contribute money for childcare expenses (daycare) and medical expenses. If you contribute $2,000 to this plan (not only do you not get taxed on this money), your work will withhold equal amounts throughout the course of the year. Whenever you incur a childcare expense or medical expense, you can get reimbursed.

What is the downside? You have to pick the amount of your contribution at the beginning of the year and can't change it. Also, if you don't use all the money you contribute to the plan, you lose it. However, the list of things you can buy that qualify as medical expenses is pretty big. Things like contact solution, Nyquil.......etc. are all qualified.

Last year was the first year that we had a section 125 plan and I contributed a conservative $400 for the year. I went to the dentist and blew right through it. So next year, I think I will contribute $1,000 or $1,500.

The bottom line is: If you aren't using these benefits, you are paying more taxes than you should be. You are literally leaving money on the table.