Unless you make very little money, you always want some pre tax, because the first 12k income is tax free (standard deduction), and the next couple tax brackets are small, so you should always be pulling pre tax money until you start hitting the higher tax brackets, at which point you'd pull from your Roth.
Pre-Tax is always going to be the best option unless your employer coverage doesn't meet minimum essential coverage or pass affordability guidelines. Then it depends on your income level and if you qualify for a subsidy. For the majority of people, pre-tax wins without question.
Post-tax deductions are taken from an employee's paycheck after all required taxes have been withheld. Since post-tax deductions reduce net pay, rather than gross pay, they don't lower the individual's overall tax burden.
Pre-tax money means income you receive that you have not paid income tax on. It doesn't necessarily mean you will never have to pay tax on those dollars. For example, you contribute pre-tax dollars to your 401(k) plan, but you will eventually pay tax on those dollars when you withdraw the money from the plan.
Pre-tax elections are irrevocable within the plan year for which they are made unless you experience a mid-year qualifying event. Simply put, pre-tax means that premiums are deducted before taxes are calculated and deducted; after-tax means that premiums are deducted after taxes is calculated and deducted.
So Social Security payments made by the employer are considered "before-tax income" (and hence, not taxable). So the value of the "before-tax income" received by the beneficiary (i.e., the employer's contribution) is potentially taxable.
Examples of post-tax deductions include Roth 401(k) contributions, union dues, and some types of insurance premiums (more on this below). Unlike their pre-tax counterparts, these funds can typically be accessed without incurring additional tax liabilities.
HSA Tax Advantages
All contributions to your HSA are tax-deducible, or if made through payroll deductions, are pre-tax which lowers your overall taxable income. Your contributions may be 100 percent tax-deductible, meaning contributions can be deducted from your gross income.
Health and dental insurance are both popular before-tax benefits; life and accident insurance, even if a voluntary benefit, can be paid with pre-tax income, giving tax advantages to the company and their workers.
Post-tax deductions, or after-tax deductions, are expenses or contributions subtracted from an employee's income after taxes have been withheld. Unlike pre-tax deductions, which are taken out before calculating income tax, post-tax deductions are applied after taxes are taken out of an employee's gross pay.
Roth 401(k), Roth IRA, and pre-tax 401(k) retirement accounts. Designated Roth employee elective contributions are made with after-tax dollars. Roth IRA contributions are made with after-tax dollars. Traditional, pre-tax employee elective contributions are made with before-tax dollars.
To calculate the after-tax income, simply subtract total taxes from the gross income. For example, let's assume an individual makes an annual salary of $50,000 and is taxed at a rate of 12%. It would result in taxes of $6,000 per year. Therefore, this individual's after-tax income would be $44,000.
For health insurance, the decision between pre-tax and post-tax contributions depends on your financial strategy and healthcare needs. Pre-tax health insurance contributions lower your taxable income, which means you could pay less in income tax throughout the year.
Budget 20% for savings
In the 50/30/20 rule, the remaining 20% of your after-tax income should go toward your savings, which is used for heftier long-term goals. You can save for things you want or need, and you might use more than one savings account.
If you expect to owe more than $1,000 in taxes, then you might be a candidate for estimated taxes. Depending on your job, business entity and income, making quarterly payments makes the most financial sense. These are the cases where that might be best — as long as you expect to owe $1,000 or more in taxes.
Contributing from your before-tax salary reduces your taxable income, and potentially how much tax you pay. Making regular contributions to your super over time can make a big difference to your super balance. Automatic and regular contributions let your super grow without having to think about it.
Unlike many other health plans, the balance in your HSA account carries over indefinitely. This means that any extra money you have at the end of the year does not disappear or reset. Instead, it remains in your account and continues to grow over time.
Payroll deductions made before taxes are taken out (aka pre-tax deductions) have the advantage of reducing your taxable income, while those made after taxes (aka post-tax deductions) don't. Post-tax deductions, though, may still have other advantages.
Most of the time, only pre-tax deductions are shown on a W-2, but there are some circumstances when after-tax deductions are listed there as well. For example, voluntary after-tax contributions to a non-Roth pension plan can be listed in Box 14.
A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement.
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.
Contributions to a traditional 401(k) are made with pre-tax dollars—meaning the money goes into your retirement account before it gets taxed. With pre-tax contributions, every dollar you save will reduce your current taxable income by an equal amount, which means you'll owe less in income taxes for the year.