Thought Leadership Thursday
Saving for College…Automatically
Thought Leadership Thursday Article
As has been the case for the past few Septembers, College Savings Month falls at a time of fiscal uncertainty creating a landscape in which prioritizing financial stability and planning for the future remains essential.
Sadly, as people make tough decisions in a volatile economy with inflation pushing the cost of living higher and higher, important savings goals like building a college fund can get overlooked. We need to encourage people to expand their practice of saving for retirement through direct deposit and do the same for education.
By participating in workplace savings programs, employees develop a habit of saving regularly, allowing them to build a strong financial foundation. Consistent contributions to retirement plans, for instance, ensure a steady income stream post-employment, serving as a supplement to pension and social security payments.
529 payroll deductions, specifically designed to fund higher education expenses, offer significant tax advantages. By contributing to a 529 plan through payroll deductions, employees can benefit from tax-deferred growth and tax-free withdrawals for qualified educational expenses. These tax advantages make 529 payroll deductions an attractive option for parents and guardians looking to secure their children's future education without facing excessive tax burdens.
A recent survey by the College Savings Plan Network (CSPN) shows there is high interest in saving for college with payroll deduction. In fact, the same study shows 57% more people would contribute more to your 529 if you were able to contribute via payroll deduction.
One of the key advantages of workplace savings and 529 payroll deductions is the simplicity and ease of implementation. Employees automatically allocate a portion of their income toward savings without worrying about manual transfers or other administrative burdens. This programmed approach helps individuals do away with the extra efforts of saving, making it convenient and seamless to build a financial safety net or contribute to a 529 plan.
By contributing to a 529 plan through payroll deductions, employees demonstrate their commitment to their children's or their own educational aspirations. This long-term approach enables individuals to plan and save for higher education expenses systematically, reducing extra financial strain and empowering individuals to achieve their academic goals without disproportionate debt or disruption. The disciplined approach to automatic saving also reduces the temptation to spend the money that you intended to save. By automating the process, the money is set aside before it has a chance to be spent.
Since becoming State Treasurer, my key priorities have remained the same, bolstering retirement security and readiness, creating pathways to economic empowerment, and promoting a culture of financial excellence. Workplace saving plays a key role in all three. These initiatives foster financial security by building a strong foundation, capitalizing on tax advantages, and promoting simplicity in saving. By encouraging and facilitating this important method of saving, employers and individuals alike can contribute to the overall well-being and long-term success of employees, their families, and society.
Delaware State Treasurer
Executive Board Member, CSPN