September is National College Savings Month and the perfect time for employers to school themselves on not only one of the most effective ways to help employees save for college costs and avoid student loan debt – 529 college savings plans – but also on other easy ways to help with higher education expenses.
The last 18 months have been challenging for employees on so many levels. As the children in their lives settle into their new school years, the reality is that no matter what age the children are, they are one year closer to college this September. While many parents want to be in the position to help cover at least a portion of the cost of their children’s post-secondary academic dreams, the stress of repaying student loans from their own education while also preparing for the cost of higher education for their children can be a heavy burden on employees.
With 75% of employees ranking student loan and 529 college savings support amongst the top three desired employer benefits overall (23% of which rank these as second only to health benefits), it’s fortunate for employers that there are three easy and impactful ways to provide support and in doing so, to distinguish themselves among other employers in the competition for top talent.
- Offer 529 Plans as a Financial Wellness Benefit
Employers who offer 529 plans as a voluntary benefit provide employees with priceless education and an easy and effective way to save. Those who match employee contributions, go a step further in support of financial wellness.
Priceless Education: With 64% of Americans unfamiliar with 529 plans, employers are uniquely positioned to provide much-needed education on these tax-advantaged savings vehicles.
Here are several of the most popular 529 plan features:
- Versatile: 529 plans can be used for a wide range of post-secondary educational expenses at a wide range of accredited schools across the U.S. and world. Approved expenses include tuition, fees, room and board, books, supplies and even computers at 2-year, 4-year, trade schools, professional and graduate programs and more.
- Tax-Advantaged: In addition to versatility, the tax treatment of 529 plans make them particularly appealing. When these accounts grow in value, they do so without tax being owed on the earnings and when the funds are withdrawn to cover qualified higher education expenses, the earnings are never taxed. Less tax means more money for college!
Additionally, over 30 states have a state tax deduction or credit for contributions to 529 plans. In New York state for instance, $5,000 a year in 529 plan contributions can be deducted from one’s state taxes and $10,000 for married couples filing jointly.
- Low Initial Minimums & High Lifetime Maximums: Most 529 plans allow investors to get started with $25 or even less and many have contribution limits that exceed $500,000.
- Easy to Get Started and Easy to Invite Others to Contribute: Investors can typically open an account in 15 minutes or less and with very little effort, can invite friends and extended family to contribute toward their mission to save.
A Proven Way to Save: While the value of automating savings contributions has been long established, according to May 2019 findings by ISS Market Intelligence, employees who contribute to 529 plans through payroll deduction at work save 75% more than if they set up automatic contributions from bank savings or checking accounts. This is likely because the money is directly invested in the 529 plan without first passing through employees’ hands and thus, helps savers avoid the possibility or temptation of funds being spent for other purposes. 75% more in savings can go a long way in covering higher education costs!
Employer Contributions: Employers of all sizes can make a one-time contribution or on-going employer match to support employees who are saving for future education expenses with 529 plans. A contribution of any size shows employees you care about their educational aspirations and helps them get closer to their goals.
- Welcome New Additions with a 529 Plan Contribution
Interestingly, September is the most popular birth month. With nine of the ten most common birthdays across the world falling in September, September is a perfect time for employers to consider starting a tradition of offering a contribution toward a college savings account as a “welcome to the world gift” for new arrivals in employees’ families.
Many employers do not realize that there are gift cards available for this very purpose that can be given to employees in denominations starting at $25 to celebrate a new arrival. An employee who receives the gift card can use it to begin saving with any 529 college savings plan or if they already have an account, they can redeem the gift card into their existing account. Making an investment in a child’s future is a thoughtful way for employers to show they care about the wellbeing of employees and their growing families.
- Provide Tax-Free Student Loan Repayment Assistance
While 529 plans are a great way to avoid student loan debt, for those employees who already are weighed down by debt, tax-free student loan repayment assistance can go a long way.
Thanks to key 2020 legislation (specifically, the CARES Act in March 2020 and the Consolidated Appropriations Act in December 2020), employers can now repay up to a total of $5,250 annually in employee student loan debt and exclude it from an employee’s income under Section 127 Educational Assistance Programs through 1/1/2026. For employers with existing IRC 127 Educational Assistance Programs, a simple amendment can add student loan repayment to complement what employers are currently covering – typically reimbursement for tuition, books and fees. For employers who don’t yet have an Educational Assistance Plan, one can easily be put in place. Toolkits are available through providers such as Gift of College, Inc.
Now’s the Time
Let Back-to-School season be a time to reflect on the benefit offerings you currently have in place to support employees with the cost of higher education and to learn about new and additional ways you can help. With only a small percentage of employers offering 529 and student loan repayment benefits (11% and 8% respectively), enhancing what you currently offer is a great way to attract and retain top talent and to alleviate the stress many employees are experiencing.