Any guidelines on going pre or post tax for pension HAS.

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fortfun
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Any guidelines on going pre or post tax for pension HAS.

Post by fortfun » Mon Jul 16, 2018 3:58 pm

My pension will be based on three highest years of salary. I've got five years before retirement but I might be in my highest HAS years now. Today, I elected to pay dental insurance post tax. It's about $700 a year for me and the kids. I calculated that I could lose out on about 15k worth of pension, over 30 years by deducting the decreased $700 in HAS. Since I'm in the 10% tax bracket, I figured I wouldn't gain that much by making the $700 premium pre-tax. Am I right?

pshonore
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Re: Any guidelines on pre/post tax with HAS (pension).

Post by pshonore » Mon Jul 16, 2018 4:16 pm

fortfun wrote:
Mon Jul 16, 2018 3:58 pm
My pension will be based on three highest years of salary. I've got five years before retirement but I might be in my highest HAS years now. Today, I elected to pay dental insurance post tax. It's about $700 a year for me and the kids. I calculated that I could lose out on about 15k worth of pension, over 30 years by deducting the decreased $700 in HAS. Since I'm in the 10% tax bracket, I figured I wouldn't gain that much by making the $700 premium pre-tax. Am I right?
Are you telling us your pension is based on earning AFTER deductions? Pensions are usually based on gross salary before FICA, 401K contributions, insurance, etc.

delamer
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Re: Any guidelines on going pre or post tax for pension HAS.

Post by delamer » Mon Jul 16, 2018 4:19 pm

I have never heard of a pension where the salary used in the calculation was reduced due to any kind of pre-tax deduction.

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fortfun
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Re: Any guidelines on going pre or post tax for pension HAS.

Post by fortfun » Mon Jul 16, 2018 4:23 pm

delamer wrote:
Mon Jul 16, 2018 4:19 pm
I have never heard of a pension where the salary used in the calculation was reduced due to any kind of pre-tax deduction.
Here's what my guide says:
Post-Tax Premium Option for Retirement
Employee paid elections for health, dental and/or vision benefits are automatically deducted as
a pre-tax benefit through a premium-only cafeteria plan in accordance with Section 125 of the
Internal Revenue Code. You pay no federal or state income tax or PERA contributions, and no
Medicare tax (if applicable) on these dollars.
Pre-tax premiums reduce salary reported to PERA, which may affect salary averaging for
retirement calculations. Therefore, the District offers the Post-Tax Premium Option to maximize
benefits for all employees. You must complete the Post-Tax Premium Election Form during the
annual open enrollment to elect this option. Electing the post-tax premium option maximizes
benefits to employees by not reducing salary reported to PERA. Post-tax benefits increase
federal and state taxable income as well as PERA contributions.

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fortfun
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Re: Any guidelines on going pre or post tax for pension HAS.

Post by fortfun » Mon Jul 16, 2018 4:23 pm

delamer wrote:
Mon Jul 16, 2018 4:19 pm
I have never heard of a pension where the salary used in the calculation was reduced due to any kind of pre-tax deduction.
This is what my guide says:
Post-Tax Premium Option for Retirement
Employee paid elections for health, dental and/or vision benefits are automatically deducted as
a pre-tax benefit through a premium-only cafeteria plan in accordance with Section 125 of the
Internal Revenue Code. You pay no federal or state income tax or PERA contributions, and no
Medicare tax (if applicable) on these dollars.
Pre-tax premiums reduce salary reported to PERA, which may affect salary averaging for
retirement calculations. Therefore, the District offers the Post-Tax Premium Option to maximize
benefits for all employees. You must complete the Post-Tax Premium Election Form during the
annual open enrollment to elect this option. Electing the post-tax premium option maximizes
benefits to employees by not reducing salary reported to PERA. Post-tax benefits increase
federal and state taxable income as well as PERA contributions.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Any guidelines on going pre or post tax for pension HAS.

Post by delamer » Mon Jul 16, 2018 5:43 pm

Very interesting.

For the $15K negative effect, is that based on just one year of taking the $700 pretax or three years?

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fortfun
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Re: Any guidelines on going pre or post tax for pension HAS.

Post by fortfun » Mon Jul 16, 2018 5:52 pm

delamer wrote:
Mon Jul 16, 2018 5:43 pm
Very interesting.

For the $15K negative effect, is that based on just one year of taking the $700 pretax or three years?
This would be the first of three years that I would pay the $700 post tax. I arrive at the 15k loss by:

$700 * .75 * 30 years. As I will get 75% of HAS. Of course, that assumes my wife or I make it to 80+. I don't think I stand to save 15k by subtracting $700 off of my income for three years. Just want to make sure I'm calculating/thinking this through correctly. The biggest gamble is whether I'm in the period of my 3 highest years but I think it is a good possibility.

Thanks Delamer.

pshonore
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Re: Any guidelines on going pre or post tax for pension HAS.

Post by pshonore » Mon Jul 16, 2018 7:15 pm

I would ask the HR folks (or the union rep if you have one) how that provision (pension based on pay after Sec 125 deductions) came to pass. That's a new one on me. Section 125 plans have probably been around for 30 years or so.

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fortfun
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Re: Any guidelines on going pre or post tax for pension HAS.

Post by fortfun » Mon Jul 16, 2018 7:56 pm

pshonore wrote:
Mon Jul 16, 2018 7:15 pm
I would ask the HR folks (or the union rep if you have one) how that provision (pension based on pay after Sec 125 deductions) came to pass. That's a new one on me. Section 125 plans have probably been around for 30 years or so.
I agree but it is impossible to get anything changed. I guess I'm stuck with what I've got. At least my wife is paying for the health insurances and that's the more expensive one!

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