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February 23 2012

plan

Tax Saving Plans With Term Insurance

It is a well-known fact that Indians are miserable failures when it comes to saving for retirement. Well, the government is offering tax credits to change this for some of us. All amount mentioned in the article are given for directional view and are not actual.

Tax Credits for Retirement Savings

Social security is going to be under siege as baby boomers hit retirements. Fortunately, many baby boomers have put away piles of cash in 401ks and IRAs. Regardless, most people fail to do all they can in this regard. In an attempt to motivate us taxpayers to save as much as we can for retirement, Uncle Sam is dangling tax credits before us like the proverbial carrot.

The tax credit in question is the Retirement Savings Contributions Credit. Qualify for it and you may be eligible to take a credit of Rs1,000 for singles and Rs2,000 if you’re filing jointly. The credit is eligible for those that make contributions to 401ks and retirement vehicles. The amount of the credit is determined on a sliding scale based on how much you make and contribute.

You can claim the retirement savings tax credit:

1. Individual taxpayers with incomes of  Rs25,000 or less.

2. Individual taxpayers that are head of households and make Rs37,500 or less.

3. Married couples filing jointly who make Rs50,000 or less cumulatively.

There are some very minor restrictions regarding who is eligible for the tax credit. First, you have to be older than 18. Second, you can’t be a full time student. Finally, another dependent can’t claim you as a dependent on their tax returns.

Importantly, this tax credit is in addition to other tax advantages you gain from piling money into a retirement account. With a 401k, for instance, you can pound in pre-tax earnings, which cuts down your adjusted gross income for the tax year. Once you figure out your taxes, you can then deduct another Rs1,000 or so for the tax credit. Put another way, saving for your retirement is a no brainer.

The federal government is practically begging you to put away money for retirement. With this tax credit, there is absolutely no reason to fail to comply.
We have discussed about term insurance, now let’s talk about tax saving plan.
Do you have medical expenses that you incur every single year? Do you always use up your entire medical insurance deductible on co-pays?
If so, there are a couple of medical saving plan available that would allow you to use tax-free money to pay for your medical expenses. That is an automatic 28%+ savings! You see every time you pay the co-pay using your checkbook, credit card, or debit card you are paying with money that has already taxed by the federal, state, and local governments.

The first medical savings plans that allows you to pay for your co-pays with tax free money is called a Flexible Spending Account, or sometimes just called a “Flex Account”. How does a Flex Account work? Simple. You simply inform your employer that you wish to set a portion of your paycheck aside for medical expenses. To do this you will need to visit your Human Resources department and fill out the appropriate form. And then each pay period, the designated amount of money is withheld from your check, tax free, and deposited in a savings account for you to use for your next doctor’s visit. And the best part, since you are withholding the money tax free, you will pay less in taxes at the end of the year. It’s a win-win.

The second medical savings plan is called a HSA or Health Savings Account. Due to the rising cost of medical expenses, our government has come up with what is known as a high-deductible savings plan for medical expenses. How it works is this, you can set aside money, tax free, into an account that you own. What this means is that if you decide to change jobs or quit entirely, you keep the money and the account. The account is a bank account in your name. What is great about this plan is that most employers will actually put money in this account for you! Every year, my company puts in Rs2000 for me to use for medical expenses. However there is one catch that you need to know about before pursuing this plan. This is a high deductible plan, which means that my deductible is also Rs2000 per year. This plan will really pay off if you are a healthy individual, who expenses are less than Rs2000 per year. Once again, check with your Human Resources Department to get more details on this type of plan. Tax saving plan can be availed through the same insurer. You should choose from types of tax saving plans to get the best term insurance which offers tax saving plan too.

By using these two plans you can save a tremendous amount of money on your medical expenses and in the process reduce the amount of taxes you will pay at the end of the year. If you have “planned medical expenses” every year that it will benefit you by planning ahead and investigating one of these tax free plans.
Never forget to comprehend term insurance details before buying them.


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