Re 401K –
Taking 401K contributions it off the top of income helps actually those who don’t itemize. This includes the vast majority of those fortunate enough not to have a mortgage tax deduction.
This would actually hurt those whose itemized deductions do not exceed the standard deduction.
Re Medical spending account claims –
They pay medical when you submit a claim and do not wait for all the deductions. If you use your entire election by February for example, they reimburse you the whole enchilada BEFORE they deduct from your paycheck. Only the dependent care claims are subject to waiting until they have actually been deducted from your check.
Re: Dependent Care account claims –
Yes, the dependent car portion reimbursements are held up until after deducted from your check. However, these are typically regular predicatble amounts that you have to spend for day care. These are for the most part predictable up-front. The maximum amount is $5000. If your monthly care expenses exceed $416.67 per month (most would) then it’s pretty easy to get ahead on the claims, so you only lose about 1 months worth of interest for each months worth of deduction (due to claims processing time). This adds up to about $1.74 per month at 5%.
I’ll give up that $20.88 in interest income ( $12.53 after tax), in order to save about $2000 on my taxes.
