Financial Wellness

Enhancing tax planning with financial wellness tools

Financial wellness platforms can implement tools like rounding, cashback and matching contributions to enhance their offerings and provide tangible tax planning benefits to their customers. Customers can use these tools to contribute more in their tax-advantaged accounts and enhance their financial wellbeing.

Tax season can be a stressful time for individuals. However, for managers of financial wellness platforms, it represents a unique opportunity to enhance customer value and engagement.

By incorporating tools like rounding, cashback and matching contributions, customers can realize the potential of their tax-advantaged accounts, optimize their tax expenses, and boost their overall financial health.

This article explores how these tools can be strategically used to maximize financial wellness for your customers during the tax season.

How can rounding encourage tax-free savings?

Rounding is a financial tool where transactions are rounded up to the nearest dollar, and the extra cents are diverted into savings or investment accounts. For financial wellness platforms, implementing a rounding strategy allows users to effortlessly save money. These micro-savings can be directed into various tax-advantaged accounts such as a Tax-Free Savings Account (TFSA) and a Registered Retired Savings Plan (RRSP).

For example, if a customer spends $23.50 at a store, the purchase can be rounded to $24.00, with the extra $0.50 automatically transferred into a designated account. Over time, these small amounts accumulate, potentially leading to significant savings at the end of the year, which can be further enhanced by tax benefits. For example, customers who round up purchases into their TFSA can grow their money inside the account completely tax-free. With 90% of TFSA holders not maxing it out every year, rounding can be a great way for your customers to contribute more.

Furthermore, financial platforms can notify their customers in real-time when a roundup occurs to help keep them on track with their contribution goals. Customers can see their monthly contributions and ensure they are not exceeding their limits.

Matching contributions: a dual benefit

Matching contributions are typically offered by employers as part of retirement savings plans, like RRSPs, where employers match a portion of the employee contributions. Financial wellness platforms can adopt a similar approach by matching contributions made into a customer's savings or investment account, effectively doubling the benefits. This not only incentivizes users to save more but also provides additional tax relief since many matching schemes are pre-tax.

For instance, if a platform offers a 50% match on every dollar up to a certain amount saved in a tax-advantaged account, it directly enhances customers' savings and can potentially lower their taxable income. This tool is particularly effective in fostering long-term savings habits and enhancing user loyalty.

How can cashback help customers optimize their tax benefits?

Cashback provides extra funds customers can earn when they shop and meet eligible reward criteria. Cashback can be configured differently depending on the merchant's strategies. For example, merchants can offer cashback on recurring purchases, a percentage of purchase value, or even a flat dollar amount. Cashback likewise can have benefits for customers and similar to roundups, the cashback earned can be directly linked to tax-advantaged accounts, further empowering customers to reach their financial goals.

During tax season, every dollar saved or invested wisely can translate into tax savings. For example, contributions made to an RRSP reduce taxable income dollar-for-dollar. More specifically, it's the lesser of 18% of someone's income from the previous year or the annual limit set by the CRA (up to a maximum of $31,560 for tax year 2024).

Managers of financial wellness platforms can optimize these tools by:

  • Educating users about the tax implications of their savings strategies.
  • Automating contributions to tax-advantaged accounts during high spending periods to maximize tax deductions.
  • Celebrate monthly achievements to help customers stay on track and keep them engaged platforms can recognize monthly contributions made.

The immediate benefit to users is the potential reduction in their tax liabilities coupled with an increase in their overall savings. Moreover, these tools can help users feel more in control of their financial health, which is crucial for mental well-being.

These tools make financial management more interactive and rewarding, increasing engagement and customer retention.

The problem for many financial platforms is that they can't find a great all-in-one solution to link cards, facilitate purchase data, implement a rewards program, and onboard and engage customers.

How Olive can help

By leveraging Olive's card-linking platform, financial platforms can take their customer programs to new heights. Our robust suite of APIs simplifies and accelerates the development process, allowing you to implement cutting-edge solutions tailored to your specific needs quickly.

With direct integration with Visa and Mastercard, Olive guarantees secure and accurate data access, empowering you to deliver real-time rewards and foster meaningful customer engagement.

Similar posts

Stay up-to-date with the latest in embedded finance and open finance

Our blog covers topics on embedded finance, open banking, open finance, open data, APIs, rounding, matching, customer loyalty and more.