401K & Flex Spending ????

Can someone explain how to figure out how much to contribute to lower your tax bracket, so you have more money in your pocket in the end and not taxes?

TIA!!!!

Re: 401K & Flex Spending ????

Both are tax exempt.

ETA: I would speak with your accountant in order to figure out how to lower your income tax bracket, b/c there are other factors (ie: salary, etc.) that are private, that I'm sure you wouldn't want to share with the folks on here.

Message edited 1/4/2008 9:28:15 AM.

Re: 401K & Flex Spending ????

Are you talking about the Medical Flex spending? Make sure you calculate how much you will use for the year when you do that. The money that is taking out of your paycheck is taxe free but if you don't use the money of your flex account during the year towards medical expenses (co-pays, meds, etc..)you will lose it.

I personally would not use the flex spending as a "tax reduction" tool.

Re: 401K & Flex Spending ????

With HealthCare FSA you should contribute what you reasonably believe you will actually use towards qualified expenses....
deductables, copays, prescriptions, vision, dental and certain over the counter medicines. If you saved your reciepts from last year look them over to get an estimate on how much you spent. Many FSA enrollee's act conservative the 1st yr....to make sure that they will use the $$$....because it is a USE IT OR LOSE IT policy. Your Employer may have set a maxium contribution limit for the year...however the IRS states that a husband and wife who file their taxes jointly can contribute $5000.00 per year towards the FSA Plan.

With Dependant Care FSA you can contibute up to $5000.00 per year as well....but make sure that the person or persons watching you child works for a liceinced facility....even if the care is in your home.

You can FM me if you are looking for more specific FSA info.

Re: 401K & Flex Spending ????

Re: 401K & Flex Spending ????

ok, I do understand that the FSA & 401K are pre-tax, that is why I wondered if there is a formular to help figure it out.

I know we will need the FSA with co-pays, RX, a new baby, daycare, so we want to take advantage of it and can lowball this year and adjust for next year when we know a more accurate amount.

I just don't know how to figure out what % of 401 and what is a typical amount for FSA.

I guess I'll have my husband talk to his employer and his accountant.

Thank you!

Re: 401K & Flex Spending ????

Reducing your tax liability and getting into a lower tax bracket are two different things. There are way too many variables to determine your tax bracket, at least one important one of which is your total income. Definitely talk to an attorney.

With respect to your 401(k), the maximum investment for 2008 is $15,500. If you are interested in how much that will reduce your take home pay, there are online calculators that can help you estimate this -- better yet, the plan probably has a calculator on its site that will be more accurate.

As for how your contributions will affect your tax liability for the year, that depends on a lot of other factors. I'd talk to an accountant / tax professional. If you need a recommendation, FM me.