Request For Help / Tax & Life Insurance
I enrolled in benefits today, and I had the option of chosing life insurance to be deducted from my paycheck, before tax or after tax. I’m still able to change my selection for the next couple of weeks, so I’m taking this opportunity to solicit some feedback. I chose after tax. Did I make the right decision?
Filed under: Insurance —
Comments (4)
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Everything else being equal, before taxes is definitely the way to go. That $100 in insurance premiums would (I’m going to assume a 15% federal tax rate) really cost you about $118 ($100/(100%-15%)) in after tax wages.
And actually, it’d certainly be more than that. Throw in your state taxes(let’s use New York @ 4% for example) & FICA(6.345%) you’d otherwise avoid paying as well, and a that $100 insurance premium just keeps getting more and more expensive – around $134 ($100/(100%-(15%+4%+6.345%))) with these assumptions.
Sean,
Fortunately, I’m in Texas, so I have no state taxes. Looking at the other figures, it does look like it’s best to do it before tax.
Thanks for your help Sean.
I have “heard” that if you pay with after tax, then when your spouse gets the money, they get it tax free, and if you pay before tax, then your spouse will pay tax on the money.
ncnblog.com
(I do not know this as a fact, but I think I heard Dave Ramsey say this..)
I’m pretty sure that ncnblog is correct. You might also shop around to see if there is cheaper coverage elsewhere.
JLP
PS – Coould you change the link to AllThingsFinancial to my new URL (http://allthingsfinancialblog.com).