Tax Planning as Related to Dental Bills
So I’ve been thinking about reducing my 401k contribution so I could pay my bills off faster.
Then there was this rigamarole about cutting back to 5% just to continue receiving the company match, because that sounded like I was giving up free money. And then I remembered that my company does a 401k true-up. So I called my benefits department to confirm this and they said yes, they do. Therefore, I’m going to cut back my contribution to nothing and let my company pay me the true up amount later. Because I need the cash now.
How does this impact my finances? Well more than I thought. Yes, I will be losing the tax benefit from the 401k contribution, but by paying off the entire bill right now, I may be able to get a couple of items of medical work completed by December 31.
To create a deductible item on my tax return, I need to spend over 7.5% of my salary on medical expenses. Now, I’ve figured out that I need to spend about another $3K to hit that mark. This means I can get my last permanent crown and eye surgery all this year. Yes, it’s spending to save, but I am going to look into it. I get the health benefits immediately rather than later and financially, I think taking the deduction now instead of next year when it won’t be deductible at all. There is a time-value component to these expenditures and I’ll have play with a few scenarios to figure out if the present value of the money is worth it.
Plus if I do all the medical work this year, it means I can put A LOT less into my medical FSA account and I can do four things in 2008:
1) Return my 401k contribution to 20% and max that puppy out.
2) Fund my traditional IRA more quickly than before. (Though I am reaching phase out stages, I think.)
3) Beef up my emergency fund again.
4) Fund a Roth IRA.
I know this dental financing topic has wandered all over the place, but this has been hugely challenging and life changing for me. I admit, I was a bit stung by CleverDude’s post about hygiene and missing teeth. (I think he should buy me a beer next time!) One of the new crowns I need is towards the front of my mouth. It’s not glaringly obvious unless I smile broadly, which is the kind of gross display of happiness I usually avoid, so I prioritized it last. I wanted to put the rear molar crowns in first because it was impacting my ability to eat. (HEY. Wait a minute. I must be getting fat because I can actually CHEW my food now!)
UGH UGH UGH. Tough decisions here. Balancing the want of eye surgery, the need for safety while motorcycle riding, the desire for tax savings and fiscal responsibility. This could be endless scenario planning. I wish this was easier.
Joseph Sangl wrote:
Have you tried to negotiate with your dentist? Many times, you can receive substantial discounts by paying cash upfront. I’m talking 15% - 40%!!!
Good luck and stick to your long-term plan of purchasing financial freedom!
Posted on 21-Sep-07 at 1:12 pm | Permalink
SJean wrote:
Fund both a traditional and a Roth IRA? You can only contribute 5k total so it seems to make more sense to pick one. that’s just me though!
Posted on 21-Sep-07 at 2:16 pm | Permalink
Asset Gatherer wrote:
It’s so hard being an adult! But I think it’s so good to think about and consider/plan all these things. So many adults try to ignore all of this, burying their heads in the sand and making things worse.
So good for you!
Posted on 21-Sep-07 at 3:14 pm | Permalink
Single Ma wrote:
Wow, you have a lot going on. When it’s all done, you’ll be one foxy mama. HA! I wish you luck in accomplishing everything.
Posted on 21-Sep-07 at 6:12 pm | Permalink
Mrs. Micah wrote:
Sounds like a good step. It can’t hurt to try Joseph’s advice, too. When our insurance was cut for a few months, my pediatrician halved our bills for my sister’s pneumonia! I still remember that act of good will.
Posted on 21-Sep-07 at 8:49 pm | Permalink
Chief Family Officer wrote:
Dental work is amazingly expensive, isn’t it? Yikes! If I recall correctly, it’s expenses ABOVE 7.5% that are deductible, not the entire amount once you reach the 7.5% threshold - I couldn’t tell if you were aware of that, but it might change your calculations. Good luck!
Posted on 21-Sep-07 at 9:46 pm | Permalink
Tight Fisted Miser wrote:
What CFO says is correct. My medical/dental expenses will be above 7.5% of my income this year but since I don’t have enough to itemize I can’t use the deduction.
I need to get 3 implants to replace my missing teeth but luckily the empty spaces aren’t too visible. It definitely looks better to have the empty spaces than the broken teeth I had before.
Posted on 22-Sep-07 at 12:42 pm | Permalink
Andrew Stevens wrote:
Sjean is right (well, almost, it’s only $4000 combined in 2007, $5000 in 2008). What’s this about both a traditional and a Roth IRA? You mentioned phase-out on the tax deduction, which starts at $50,000 for single taxpayers. After $60,000 and if you have access to a 401(k) (and you do), then you get no tax deduction. Better go with a Roth instead (which is what you should do even if you haven’t reached phase-out). As long as you’re under the income limits, the Roth is the better bet 90% of the time.
Posted on 22-Sep-07 at 2:14 pm | Permalink
Andrew Stevens wrote:
Just noticed that you were talking about 2008, so Sjean was just 100% right.
Posted on 22-Sep-07 at 2:14 pm | Permalink