Long-term disability (LTD) insurance provides you with income if you become disabled and are unable to work. Although Vanguard pays the full premium for this coverage, you can choose whether the premium is deducted from your pay before or after taxes.
During Open Enrollment, you have the opportunity to change your long-term disability election. Note: Your election change will not go into effect unless you are actively working (not on leave). Important tax considerations are as follows:
- If you choose to pay for the LTD premium with pre-tax dollars (as you do for most of your other benefits) and you become disabled, your LTD benefits will be subject to federal income tax.
- If you choose to pay for the LTD premium with after-tax dollars, you'll pay more now. But if you become disabled, your LTD benefits will be exempt from federal income tax.
This distinction is important because your LTD benefit replaces 66⅔% of your monthly pay, and taxes would further reduce the LTD payment you receive.