Many parents dream of sending their children to college. Unfortunately, this dream can quickly become a nightmare - it's not easy to come up with $20,000, $30,000 or even $50,000 a year for tuition payments.
A simple, inexpensive way to help your employees save for college is by including a 529 savings plan as part of your benefit package.
A 529 plan is very similar to a 401(k) plan, with the goal of saving money for approved college expenses instead of retirement. Like a 401(k) plan, the employee sets up an account and funds it through payroll deduction. The money, which is usually managed by a financial firm, is invested in a tax-deferred account and hopefully grows over time until it is needed for college. Unlike a 401(k) plan, after-tax money is used to fund the account, but the money is not taxed when it is withdrawn for approved college expenses.
Offering a 529 plan as part of an existing benefit package is simple and inexpensive because the employer's role is usually limited to employee education and payroll deduction arrangements.
The goal of educating employees about 529 plans is to help employees feel comfortable enough to make the following decisions:
- Do they want to participate in a 529 plan once they understand the pros and cons of this investment?
- How much do they want to contribute each payroll period?
- Which plan do they want to choose for their investments?
Live or on-demand webinars or lunch-and-learns can be good, inexpensive ways to provide basic information about 529 plans for interested employees. Local financial advisors can be tapped to provide more in-depth information about the many different investment options available for 529 plans, including state-specific tax deductions and benefits.
Payroll deduction makes the contribution process easy for both the employee and the employer.
- The employee decides which 529 plan they want to participate in and the amount of their after-tax payroll deduction.
- The employee contacts the 529 plan they want to participate in and opens an account. The plan administrator will assign them an account number.
- Once the account number has been assigned, the employee receives an authorization form to give to their employer. This form contains the routing instructions needed to initiate the payroll deduction.
Since the employee chooses the investment plan they want to participate in and can make changes to the amount they contribute through the standard payroll deduction process, the employer's role in maintaining this benefit is usually very minimal.
The 529 plan education and payroll process can be a low-cost way to offer an additional benefit to your employees. Saving for college has become increasingly difficult over the past few decades; this benefit can make that process easier for your employees.