The general consensus among most parents, but especially sped parents, is that our kid’s medical bills are astronomical. I’m guessing most of us are on a payment plan with the hospitals. That’s our life. Plain and simple. I’m here to tell you that while our money may be counted for every penny, there are ways for you to set some money aside for yourself. Yes, I dared say it. Money just for you….not your children. Here’s a few tricks just for you…..
Did you know you can claim some medical expenses on your taxes? You will need to use an accountant who knows what they are doing with this particular topic! Fact is SPED kids have a lot of medical bills and a lot of extra expenses that you can’t claim on your taxes but that make life livable (like Sami’s toilet platform, clothes that fit, organic food). That’s where the accountant can help you sort through. The only time we were able to use the medical tax deduction was when we built our house. It was very tricky because we had to itemize each special expense compared to a normal house building expense (example: a normal door was $88 and ours were $108 because they were wider – we could use the $20 difference in our figures). Check with your accountant, but as I understand it, anything surpassing 7.5% of your salary spent for out of pocket medical stuff could be used as a tax credit type thingy (hey, I’m not an accountant). So, if you make $50,000, you’d have to spend more than $3750 in out of pocket expenses. Every dollar over the $3750 could be counted – not the first $3750. Check out the IRS website for specifics at http://www.irs.gov/pub/irs-pdf/p502.pdf . It’s worth it if you are really racking up the hospital visits and living accommodations. Even your mileage counts.
And speaking of IRS regulations: A 401(k), 403(b), and 457 are all retirement plans you can contribute to through payroll deductions (ingeniously named after the codes). Each has limits to the deposit amounts and each has it’s own rules about how long you have to keep the money in the account (and penalties for early withdraws – it’s retirement money, not a savings account). The great thing about these plans is that they are automatically done in payroll so you aren’t writing checks with what’s left at the end of the month and the limits are much higher than personal IRA’s so you can really sock away some funds for yourself! And if you are lucky, your employer will match some of your contributions for a little extra boost.
Knowledge is Power:
For each of these plans, you can choose Mutual Funds or Annuities to invest in. Both are just collections of stocks and bonds in nice little packages.
Stocks = pieces of ownership in a company, higher risk
Bonds = basically IOU’s, low risk, low returns
I like to think of Mutual Funds as pizzas. You have stocks and bonds that are like the toppings all spread out so that everyone gets a little bit, and you are only buying a slice of the pizza. Lots of people can put in their $5 and get a slice too. It’s a way to diversify and obtain many different stocks without having to put all of your nest egg into just one company (Enron anyone?). Mutual Fund companies differ in their hands on approaches. Some let you do most of it, some have more involved advisors.
An Annuity is a contract with an insurance company where they will invest your money for you in the same stocks and bonds as Mutual Funds (some even have Mutual Funds under their Annuity umbrella). It’s not life insurance! It’s just them investing your money. Typically, annuities have more fees involved than straight Mutual Funds because they usually come with some kind of guarantee (for instance: they may guarantee you won’t lose your initial investment) and they are supposedly watching your money for you more than other companies.
With both Mutual Funds and Annuities, you will need to watch out for surrender fees!!! These are fees the company charges you if you decide to move your money before they are willing to give your money up. I’ve heard of some companies having up to seven years before you can freely take your money without penalty. This usually comes into effect if you aren’t happy with your “profit” returns and want to change companies. Again, these are retirement accounts and not savings or emergency accounts. It’s not money for your kid, it’s money for you!
In a general sense, 401(k)’s are for profit businesses, 403(b)’s are for non-profits (like charities and schools) and 457’s are for government employees (police, fire, schools, city government, etc…). Did you notice that schools are listed twice? They are the only people who qualify for two separate plans and they can double up on their retirement savings. Lord knows they deserve a huge retirement after teaching for 30 years!!! The 403(b) and 457 are NOT the state retirement pension plans - these are on top of the state plans - where you control the dollar amount and investment company.
Your age, number of years to retirement, and goals should determine what Mutual Funds or Annuities you invest in. If an advisor asks you first how much money you have, turn around and walk out! They should find out what your life is about and where you want to be first, so they can work backwards to find a plan for you. It’s all about you baby!
A Flex 125 Cafeteria Plan is a “money for today” plan rather than waiting for retirement. This plan allows you to put money away in a special account in order to pay for child/adult care or medical expenses that your insurance doesn’t take care of. I love the medical side of this plan for chiropractic appointments, orthodontic braces, Lasik eye surgery, contacts, mileage to and from hospitals, co-pays, deductibles, prescriptions, Motrin, those great heating pads for your back, just all kinds of things for anyone living in your house that is on the same tax return (not just the employee but everyone)!! Think of it this way = if your local drug store told you that you’d be able to get 25% off most everything in their store if you had a coupon, you’d do it in a heartbeat. With the Flex Plan, the employer’s payroll department puts the money in the Flex account, then after you pick up your items from the drug store or visit the doctor, you turn in your receipt to your employer and they reimburse you.
The child/adult care portion works the same way. Get a receipt from your care provider and turn it in for reimbursement. You are already paying for the daycare, so why not save 25% by just turning in a receipt. That’s a no brainer!
The only thing is that if you put in too much money and don’t spend it within the time frame, you lose it. So be careful how much money you designate. Just don’t let that little thing stop you from participating!
All of these plans (retirement and Flex) are pre-tax which means the money is pulled out of your paycheck before the government taxes are taken out, saving you around 27% (depending on your tax bracket). So, if your normal salary is $1000 and you put $70 into your 401K and $30 into your Flex, the government only sees $900 to tax you on instead of the original $1000.
Another cool thing is that many employers will match some of what you are contributing to your retirement plan and some will even put money into your Flex 125 or a HRA (Health Reimbursement Account – it’s like a Flex account but the employer is putting their own money in for you to use). That’s free money!!
These are fabulous plans! Remember all of those goals you’ve made? Wouldn’t the extra money you are saving here go a long way to bringing those goals to fruition? You are so worth it!!