Originally Posted by
TallFlyer
The under reported downside of the tax free LTD (particularly for a younger pilot) is that while you will receive your company 401k contribution in either case (calculated from your pre disability income level) if you opt for the tax free LTD then that contribution comes to you as taxable income and NOT into your 401k. For a younger pilot that could be forgoing some significant gains.
Should you not have the tax free LTD then it goes into your 401k. I believe any post LTD sick, vacation, or ESB payouts are seen as taxable income and you may have the ability to direct those into your 401k.
As always, consult someone much smarter than me before making financial decisions.
The general math works like this. If you are close (<10 years) to retirement, could use a little more in the ole 401(k) but aren't buried in expenses then pre-tax is probably good. You'll end up with 40% of your gross income as take home but keep similar retirement contributions. If you are younger (broker), then post-tax is probably better because the extra income will help you keep your house. If it turns out you stay disabled forever (this is extremely atypical) then the loss of the heavy DC could be detrimental in retirement. But generally not being able to work for most of your life is very detrimental to retirement. So more likely you get more money to live (but less tax sheltered savings) for a few years then get back to flying with no debt or foreclosure and continue until retirement a little less well off than the lucky ones who didn't have health problems but still far better off than 70-80% of the population.