Employee Financial Stress is Your Problem, Too
This is a subject that's come up so frequently among employees at the clients we serve that it became part of our Spotlight Series program, Time to Pay: Spending your College Savings Wisely.
The gist is that when it comes time to draw from those all-important savings accounts, how employees do so can have great financial impact. And employees are often surprised - happily - to learn that there are benefits to paying strategically.
What Your Employees Don't Know Can Hurt YouThe subject is of particular consequence to an important segment of your workforce your middle-management and senior leadership.
These employees often fall between the ability to pay out of pocket and eligibility for a lot of assistance. They make too much money to qualify for much financial aid, but not enough for college payments to be a stress-free endeavor. This segment of your workforce often ends up slipping through the college-financing cracks, and as a result is left scrambling to make college payments on their own, and struggling with how to do so in the most effective manner.
A Big Problem for Key EmployeesThis type of employee financial stress is a big problem since many of these people make up a valuable portion of your knowledge base. Their focus - and retention is critical to your company's success. That means strategies that address this trickle down from their performance...to yours.
I often advise employees in this situation to take advantage of tax-advantaged 529 College Savings Plans and education tax credits such as the American Opportunity Credit (AOC). Unfortunately, however, benefiting from both strategies is not as easy as one would hope, and many employees miss out on their maximum tax break.
As outlined in a recent blog post, careful planning is required in order to maximize both tax benefits in light of the IRS's policy against double-dipping:
You should be aware that the IRS does not allow you to claim two education tax breaks for the same college expense. That means you can't spend money out of your 529 Plan and count it towards your eligible expenses for the AOC. With this in mind, when planning your annual 529 withdrawals, you may want to actually hold back on $4,000 each year. Pay at least $4,000 of tuition expenses out of your income, a taxable saving account, or even with a loan, so that you may be eligible to claim the full $2,500 American Opportunity Credit. If you've already paid all of your child's 2014 college expenses out of your 529 Plan, it may actually be in your best interest to pay taxes on the earnings portion of $4,000 worth of withdrawals (effectively not taking any tax break for that part of your 529 payment), so that you may then claim the full AOC. The benefit gained from the tax credit will likely be larger than the tax hit on your 529 withdrawal.
Spending College Savings WiselyThis maximization of tax breaks is just one of the tactics discussed in College Coach's Spotlight Series program, Time to Pay: Spending your College Savings Wisely. The program helps employees to understand important elements, such as:
- How to most effectively use college savings
- How badly timed withdrawals can cost their children financial aid
- How using college savings plans may impact education tax credits
While no particular segment of the workforce has a monopoly on financial stress, the segment in the middle ground are often the ones with some of the most complicated financial situations.
And that makes helping them navigate it just as valuable to employers.
March 1, 2020