Younger Workers Lack Awareness Of Tax-Advantaged Savings Opportunities
Employees between the ages of 18 and 24 are less likely than older workers to participate in tax-advantaged retirement and health savings plans, but they are more likely than their older colleagues to fault their employers for failing to educate them about taxes, according to a survey conducted by online tax preparation service CCH CompleteTax.
Researchers questioned 1,290 adult taxpayers about their savings habits and participation in employer-sponsored savings plans. While 56% of all survey respondents reported participating in a 401(k) or other defined contribution plan, just 28% of workers in the 18–24 age group said they have joined their employer’s retirement plan.
When asked about their 401(k) contribution levels for 2006, 14% of all survey respondents said they had contributed the maximum amount permitted, and 23% said they contributed at least the amount needed to take full advantage of the employer match. By comparison, just 4% of younger workers reported making the maximum allowable contribution to their 401(k) plan in 2006, and just 16% said they contributed enough to get the full employer match.
Results further showed that 10% of employees between the ages of 18 and 24 participated in a medical flexible spending account (FSA) in 2006, compared with 21% of all workers. The survey also found that 11% of younger employees are uncertain whether their employer offers a medical FSA.
While around one-third of all survey respondents said they contributed to a traditional or Roth IRA in 2006, just 19% of workers between the ages of 18 and 24 reported funding an IRA last year. In fact, 57% of respondents in this group told researchers they do not know if they qualify for a tax-advantaged IRA.
When asked if they believe their employer is providing them with adequate information about retirement planning and other issues related to benefits, 23% of all employees surveyed said their company is doing an excellent or very good job of keeping them informed. But among younger respondents, just 15% gave their organization high marks for providing benefit information, and 19% said their employer is doing a terrible job of educating employees about benefits.
Tax Analyst for CCH Complete Tax David Bergstein, CPA, observed that younger workers may need to take more initiative to become more tax-savvy consumers. However, he added, employers also need to consider if they are doing enough to communicate effectively with younger employees. “If young workers are not hearing the message, no matter how good it is, they don't have the information they need to make informed choices.”
