More employers promote college savings plans
529s are becoming part of company’s benefits
The last place many parents would look for ideas on how to save money for college is their workplace. After all, connecting with a 529 college savings plan is not exactly your typical job perk.
Many young families don’t even use 529 plans for college savings.
About 45 percent of parents use an old-fashioned savings account to put aside money for college – making the low-risk, low-return accounts the most commonly used strategy, according to the 2018 “How America Saves for College” report by Sallie Mae, a provider and servicer of private student loans.
Only 29 percent use the next most popular investment vehicle, tax-advantaged college 529 plans that offer a mix of stocks and bonds. Many times, families don’t even know how to open a 529 plan, according to Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
But more employers are weaving financial wellness into the company culture and, as a result, some employers now are encouraging their workers to use payroll deduction for 529 plans.
“As employers are moving into the realm of financial well being, this is the absolute next step,” said Brian Coleman, vice president for total rewards and human resource shared services for Dawn Foods, which has its headquarters in Jackson, Michigan.
Dawn Foods is one of a small group of companies focusing on highlighting the benefits of college savings. Dawn Foods began offering a 529-related benefit to workers last year. Employees are able to contribute to the Michigan Education Savings Program via payroll deduction or direct deposit.
The money can be used for a wide range of purposes, including a four-year college, community college and trade school.
Coleman said he views talking about college savings as the next logical step now that most employers are offering
401(k) plans for retirement savings. “They’re already talking to us about their 401(k) and how do they save for their future,” Coleman said.
The company has held seminars to help employees better understand how a 529 plan works. The savings program is mentioned during open enrollment.
“Now, they’re saving for their children,” Coleman said.
Some start saving as little as $15 a paycheck. Others are saving as much as
$100 to $200 a month.
Deadline approaching
Because Dawn Foods has distribution centers and plants across the country, it is careful to explain that the Michigan 529 plan, offered through payroll deduction, might not be the best for someone who lives in another state.
While the Michigan plan is one option, team members are encouraged to consider various state-sponsored 529 plans, which may have specific tax breaks for residents of those states.
If you live in Michigan, you’d need to contribute to the Michigan plans, which include the state’s prepaid tuition program called the Michigan Education Trust, to qualify for a tax break on the Michigan income tax return.
Dec. 31 is the deadline to contribute to a 529 plan for any state tax deductions that might apply for 2018.
It is fairly easy to open a 529 plan online or through a financial adviser. You do need the date of birth of the child, the child’s Social Security number and address. And you can often set up electronic payments out of your bank account to set aside money automatically each month.
Employers say promoting the 529 plan on the job greatly simplifies things for workers. “There’s no having to remember to sock something away,” said Mike Malloy, chief people officer for Quicken Loans.
Quicken Loans, which has offered payroll deduction for 529 plans for many years, said the 529 benefit has seen solid participation among its staff.
Over the years, Malloy said, employees have found that they’ve been able to build up substantial college savings by steadily having money taken out of their paychecks.
Sometimes, parents start saving a small dollar amount into the 529 plan and they later set aside more money through payroll deduction as children grow older. “When we talk about this benefit, we say, ‘ Just start with something,’ ” Malloy said.
Costs are ‘skyrocketing’
Only 11 percent of U.S. employers provide an opportunity for payroll deduc- tion into a 529 college savings plan, according to the 2018 Society for Human Resource Management Employee Benefits Survey. About 1 percent go a step further and offer an employer contribution or match for money savings into a 529 plan.
It’s a quirky type of a newer benefit, much like pet insurance. About 11 percent of U.S. employers offer health insurance for pets, too, according to the benefits group.
Money in 529 accounts won’t be taxed as it grows. Withdrawals also are exempt from federal income tax when used for qualified higher education expenses, and similarly, many states also exempt withdrawals.
What many might not realize is that 529 college savings plans – unlike prepaid tuition plans – can be used for a variety of expenses, including room and board, textbooks and qualified fees. The savings can be used toward expenses at private and public colleges, vocational schools or other post-secondary educational institutions eligible to participate in a student aid program administered by the U.S. Department of Education.
California’s ScholarShare 529 plan has been actively working to partner with companies that see the benefit of making it easier for their employees to save for college.
California State Treasurer John Chiang said he promotes the savings plan to employers as an easy, no-cost way to help their employees meet a financial challenge.
“We know that education costs are skyrocketing,” Chiang said.
The theory is that students who have some savings in a 529 plan have a better chance at limiting how much money they end up borrowing for college. Ending up with a more manageable debt burden would enable college grads to be better prepared to save for a down payment for a home or a new car.
The average balance for savers in the California 529 plan – including those who set up accounts outside of work – was $28,120 as of the end of September. The average account balance for the Michigan Education Savings Program at the end of September was $21,609.