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By Ashley Cluley

Financial issues impact employees in every stage of life. Here are a few that you may have heard in passing but that have not received many headlines.

Stage 1: Debt Elimination

In 2018, the IRS issued a private letter ruling (PLR) which allowed an employee to make student loan payments acting as their 401(k) ‘deferral’ and therefore were eligible to receive the 401(k) match. Now there is proposed legislation to solidify the letter into a formal rule. Essentially the new rule would allow an employee to make regular student loan payments and the employer to make a matching contribution into their retirement plan as if the employee had deferred into the plan. This retirement benefit would be voluntary, and employers decide whether to participate. This new feature may give younger employees the ability to begin their retirement savings and balance debt elimination at the same time.

Stage 2: Family Planning

Under the American Rescue Plan Act, the child tax credit is temporarily increased for tax year 2021. Instead of waiting until tax day to receive benefits, the credit has been partially converted into advanced monthly payments.  While each family’s situation is different, a typical family with a household income of less than $150,000 (married filing jointly) and two children, ages 4 and 7, would receive $550 per month beginning July 15 continuing monthly through Dec. 15. These advanced payments will provide real, immediate cash in employees’ pockets. This may be a great time to remind them to put some of that additional cash away as retirement savings.

Stage 3: Estate Distribution

With all baby boomers reaching age 65 by 2030, planning for inherited pre-tax retirement assets is essential. As part of the Secure Act passed in 2019, the person (non-spouse) receiving inherited pre-tax accounts has just 10 years to move the money from pre-tax to a post-tax status. In other words, a child in their 40s inheriting a $1 million IRA from their parents will realize an additional $1 million in taxable income over the next 10 years. That can shift them into a significantly higher tax bracket they had not previously considered. It is important to have a plan and an advisor to navigate this new 10-year rule.

— Ashley Cluley is a wealth coach with Foster Victor, a financial planning firm that helps business owners stay abreast of the changing landscape that affects the financial health and happiness of their employees thereby strengthening employee productivity and retention.


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