Welcome

2. Welcome • 2nd of 16 Sessions • No cost to participate. • Financial Support: • FINRA Foundation & United Way Worldwide • Solid Finances Webpage: • www.msuextension.org/solidfinances 2

3. Text Your Questions • Do you have a Question? • Do you want to comment? • Type in the Q & A pod:

4. Send Your Questions Click this after typing question in Q & A Pod

5. Schedule • October 13th • What’s Your Credit Score & What does it mean? • October 20th • Saving Money by Paying Down Debt 5

6. Save Money with Tax-Free Medical Savings Accounts 6

7. Tax Favored Plans Montana Medical Care Savings Accounts-MSAs Flexible Spending Accounts- FSAs Health Care Savings Accounts-HSAs 7

8. Question A: Do you have medical bills not covered by insurance? • Yes • No 8

9. Calculating Tax Savings 9 • Flex Plans and HSAs save on • Federal Income Taxes • Montana Income Taxes • Montana MSAs help save on • Montana Income Taxes

10. 2011 Federal Individual Income Tax Rates 10

11. Marginal vs. Average Tax Rates John (Single) earns $50,000

12. Question B: What tax rate should John consider when calculating savings from a Flex plan? • 10% • 15% • 17% • 25% 12

13. Tax Rate John should consider 25% 13 13

14. Tax Brackets & Rates Montana- 2010 www.mt.gov/revenue 14

15. Tax Saving Example 15 This was reduced to 5.65% for 2011. Reducing the savings by $24.

16. Question C: Are you currently enrolled in a flex plan? • Yes • No • Not sure 16

17. Terms 17 Section 125 Plan Flex Plan Cafeteria Plan Medical Reimbursement Plan Dependent Care Reimbursement Plan

18. Two Parts of the Flex Plan 18 • Part 1: Medical Reimbursement • Reimburses qualified out of pocket medical expenses

19. Two Parts of the Flex Plan 19 • Part 2: Dependent Care Reimbursement • Reimburses qualified “day care” expenses

20. What are eligible medical expenses? Allowed as a deduction on federal income tax return Publication 502 www.irs.gov 20

21. Eligible Expenses Health insurance premiums Co-payments Vision exams, glasses, contacts Dental exams, co-pays, dentures 21

22. Eligible Expenses Prescribed drugs Insulin Chiropractor’s fees Lab fees Hearing aids Nursing home fees 22

23. Ineligible Expenses Most over the counter medications This is new for 2011 Medical expenses reimbursed by some other type of insurance Health, Auto, Workers Compensation 23

24. Question D: Are my spouse’s medical expenses eligible for reimbursement from my account? • Yes • No 24

25. Family Member’s Expenses 25 • Spouses expenses are eligible • Are my child’s expenses eligible? • Yes, if they are under age 27

26. Medical Care Contribution Limits 26 • 2012: No federal maximum • 2013: $2,500 per person maximum • Plan imposed contribution limits are common • Minimums & Maximums

27. What are eligible dependent care expenses?* Day care expenses Babysitter expenses *Both you and your spouse must be working, in school or looking for work 27

28. Who is an eligible dependent? 28 • Children under age 13 • Spouse not able to care for themselves

29. Dependent Care Contribution Limits 29 • Federal contribution limit • $5,000 maximum • Maximum plan limits are rare

30. Plan Details • Each plan has a “plan year” • Not always a calendar year • Sign up each year • No changing your contribution amount during the year • Unless you have a qualifying event • Have a child, get married, divorces or have a death in the family 30

31. Flex Plan Year 31 Eligible expenses must be incurred within plan year 90 day grace period after end of plan year to submit claims

32. Money Remaining in Flex Accounts 32 • Money remaining in the accounts after the grace period is forfeited • IRS requirement

33. Reimbursement Rules 33 • Medical Care • Claims reimbursed as soon as incurred • Dependent Care • Claims reimbursed only after contributions have been deposited

34. Dependent Care Example 34 • Jeff contributes $200 per month • January 1st & February1st • Total $400 • Jeff has $800 expense on February 15th

35. Dependent Care Example 35 • Jeff files a claim for $800 on February 20th • Jeff receives $400 reimbursement • Why? He only has $400 in his account on February 20th • Jeff must wait until March 1st for the next $200 & April 1st for the last $200

36. Question E: Is the flex plan valuable for your situation? • Yes • No • Maybe 36

37. Marsha Goetting Extension Family Economics Specialist Department of Agricultural Economics & Economics 37

38. Question F: Do you have a Montana Medical Care Savings Account? • Yes • No 38

39. What is an MSA? An account that can be used for paying eligible medical expenses that are not covered by a health insurance policy or flex plan

40. Who is Eligible? • Montana resident tax payers only

41. MSA Deduction • $3,000 for each taxpayer • $6,000 married couple (separate accounts)

42. Montana Taxable Income Adjusted income $ 42,000 MSA deposit - $6,000 Taxable Income $36,000

43. MSA Saves on Montana Income Taxes • Contributions to MSA: • Taxes saved depend on tax bracket

44. Question G: What is the amount of taxes a couple earning $40,000 would save on a $3,000 MSA deposit? $507 $414 $207 $126 44

45. Tax Brackets & Rates Montana- 2010 www.mt.gov/revenue

46. Tax savings with MSA 6.9% bracket (2010) Taxable income more than $15,600 $3,000 x .069 $207 Tax Savings from having MSA on medical expenses you have anyway or even if you don’t use 46

47. Regular savings account interest income 6.9% bracket (2010) Taxable income more than $15,600 $3,000 x .0005 $1.50 earnings x .069 = .10 After tax earnings $1.40 47

48. Eligible Medical Care Expenses IRS Publication 502 www.irs.gov 48

49. Save more in taxes than Interest Earnings 49

50. Example: Barbara • January 31 • $3,000 deposited in MSA • Eligible medical expenses • $2,000 during year