You probably have at least a few employees who recently looked at their paychecks expecting to see a specific number and were surprised to see a higher one. And that presents a golden opportunity for finance pros.
The increases are one of the effects of the new Tax Cuts and Jobs Act. Specifically, the average U.S. employee will get an estimated $2,000 per year more (or $70 per paycheck) as a result of the tax overhaul.
And when you combine that with the tax-savings bonuses some employers are passing along to their staffers, many folks will be sitting on a significant amount of extra cash.
4 ways to stretch tax law bumps
This is a golden opportunity for you to help employees bolster their financial security and make the added income from the tax law go further.
Here are four things firms can encourage folks to do with their extra cash, courtesy of UMB Healthcare Services CEO Begonya Klumb:
1. Bump up 401(k) contributions. When money is tight, it can be nearly impossible to convince workers to increase their 401(k) contributions. But you may have more luck with money they weren’t expecting to have.
This is especially true if you offer a match and can show exactly how much an extra $70 can impact balances over one, five or 10 years.
2. Take advantage of an HSA. If employees are already contributing heavily to your 401(k), convincing them to invest their extra funds in an HSA is a solid option.
This is a good time to remind workers of the triple tax advantage of HSAs that take place at deposit, during the account’s lifespan (no use-it-or-lose-it) and during withdrawal (for qualified medical expenses).
3. Create an emergency cushion (i.e., don’t spend it). Less than half (39%) of Americans have enough money in savings to cover a $1,000 emergency. The tax law bump could be used to create a financial cushion.
4. Pay down debt. From credit cards to student loans, many workers are saddled with high-interest debt. Using this money to chip away at such debt can help workers save a small fortune in interest.