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Section 125 / Cafeteria Plans

Section 125 / Cafeteria Plans

Section 125 or Cafeteria Plans, also known as flexible benefit plans, are employee benefit plans that allow employees to pick from a selection of pre-tax benefits.

They can offer more personalized benefits as workers choose from several options to get the most suitable cover for their needs. Options often include health savings accounts (HSAs), life insurance, or disability insurance. 

Employees estimate how much they will contribute to their plan before the start of the tax year and each month contribute from their paycheck based on this estimate. Funds not used over the plan period are forfeit.

Related Terms:

Flexible benefits plan

Health Savings Account (HSA)

Small Business Health Options Program (SHOP)

 

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