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Example: converting sick-leave cash-out into a tax-free VEBA MEP contribution
Summary
A numeric scenario illustrated how a retiring employee with 1,000 sick hours and a 25% cash-out rate would receive $10,000 pre-tax (about $7,000 after taxes) if taken as cash, but could retain the full $10,000 tax-free in a VEBA MEP for health expenses, the presenter said.
Brian provided a numeric illustration to show how VEBA MEP treatment can differ from a taxed sick-leave cash-out. He used a hypothetical retiring state employee, "Jack," with 1,000 hours of sick leave and a 25% cash-out rate.
Brian said Jack's 1,000 hours at $40 per hour would add up to $10,000. "After taxes, Jack can expect to have about $7,000 left," Brian said; he added that if the same amount is placed into a VEBA MEP at retirement, Jack keeps the whole $10,000 tax-free and may use it for qualifying health expenses.
The example was used to illustrate the potential immediate tax advantage of depositing sick-leave cash-outs into the VEBA MEP rather than receiving a taxed cash payment.
