The Importance of Offering 529 Plan Contributions in an Employee Benefits Package

By Julia Califano · March 15, 2024 · 5 minute read

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The Importance of Offering 529 Plan Contributions in an Employee Benefits Package

It’s no secret that education-related debt is negatively impacting the lives of many American workers. Student loan burdens have significantly increased in the last decade: At the end of the third quarter of 2013, Americans’ total student debt came in at just over $1.1 trillion, according to Federal Reserve data . At the end of Q3 2023, that number was over $1.7 trillion.

As a large portion of today’s workforce struggles to save for education — whether for themselves or their children — and pay off existing student loan debt, it’s becoming increasingly relevant for employers to consider how they can help their employees reach these important goals.

Non-traditional employee benefits, such as 529 college savings plans and student loan repayment programs, have been shown to positively affect employee engagement while also helping employers attract top talent in a competitive job market.

Here, we take a look at some of the advantages of offering 529 college savings plans as part of an employee benefits package and explore why it’s a perk forward-thinking employers may want to consider offering their teams.

Reduce Employee Stress, Increase Engagement

Providing employee benefits that help workers to more effectively tackle the financial stressors in their lives has the potential to directly impact their sense of well-being, both at work and outside of it.

According to PwC’s 2023 Employee Financial Wellness Survey , financially stressed employees tend to be more distracted, less engaged, and more likely to seek another job. In the study (which included 3,638 full-time employed adults across a variety of industries), a full 60% of respondents said they were stressed about their finances. Sleep, mental health, self-esteem, physical health, and personal relationships were all impacted by this stress, and nearly one-third of employees surveyed admitted that financial insecurity has negatively impacted their productivity at work.

By supporting employees through company-sponsored 529 plans or other financial wellness benefits, employers may also positively affect overall engagement and productivity among their staff.

Recommended: How Student Loan Benefits Can Help Retain Employees

Offer Benefits Workers Want and Need

One of the many things that can keep parents up at night is the looming cost of their child’s college education. The average cost of tuition and fees for the 2023-2024 school year is $42,162 at private colleges, $23,630 for out-of-state students at public universities, and $10,662 for in-state residents at public schools, according to U.S. News. Those numbers are just for one year and don’t include housing, food, and books, which can run thousands of dollars annually.

Coming up with that kind of cash (each year for four years) can be daunting for many parents. In a June 2023 survey of 1,000 parents of teenagers by Discover Student Loans, 70% of subjects said they were worried about financing their kids’ college expenses. Not only that, 68% of parents were concerned about the amount of debt their kids will be saddled with even after the parents offer up their own financial assistance.

Providing employees with much-needed information about 529 plans and giving them a convenient way to contribute directly from their pay, can go a very long way in helping to relieve the stress associated with one of their top financial concerns.

529 Plans Offer Multiple Benefits

A 529 education savings plan can be implemented at little or no cost to employers and requires no government reporting, making it a quick and easy employee benefit to include. Plus, if desired, employers can choose to match all or a percentage of employees’ contributions. Here’s a closer look at some other perks that come with 529 college savings plans.

Tax-free Growth for Education

A 529 plan creates an incentive for parents (and other family members) to invest toward a child’s future education costs because earnings in the plan can be tax-deferred. Withdrawals are also exempt from federal and, in most cases, state income taxes if plan holders use the funds for qualified expenses, such as tuition, fees, room and board, and supplies. Many states provide additional state tax deductions or tax credits.

In many cases, employers offer matching contributions to employee 529 accounts, giving parents an added incentive to save.

New Rules Remove Concerns About Over-Saving

The SECURE Act 2.0 made a big change to how a 529 plan can be used. Starting in 2024, savers are able to roll unused 529 funds — to a lifetime limit of $35,000 — into the beneficiary’s Roth IRA, without incurring the usual 10% penalty for nonqualified withdrawals or generating any taxable income. This might come as a relief to any employees who worry about having excess funds stuck in a 529 should their child not need the money (say, they decide not to go to college or choose a lower-cost school).

Plan holders need to have owned the 529 for at least 15 years before they can execute a rollover, which is even more reason to open a 529 plan sooner rather than later.

529 Plans Aren’t Just for College

While 529 plans are generally associated with university education, they can also be used for private primary and secondary schools. As a result, employees who are paying tuition for grades K-12 can take advantage of a 529 plan, too. The expansion of the program came about as part of the 2017 Tax Cuts and Jobs Act.

The updated rules also allow for the use of 529 plan distributions in apprenticeship programs. Apprenticeships are now considered a qualified higher education expense if the apprenticeship is registered and certified with the U.S. Department of Labor.

Recommended: How Employers Can Help New Parents

529 Plans Can Be Used to Repay Student Loans

The 529 plan was expanded further in 2019 with the passage of the SECURE Act. Now a 529 plan can be used to pay off up to $10,000 in the beneficiary’s student loans, as well as up to an additional $10,000 in student loans for each of the beneficiary’s siblings. Both private and federal student loans are eligible.

Recommended: Helping Employees Make Smart Student Debt Decisions: The Urgent Need for HR Support

The Takeaway

A 529 plan can be a smart addition to any organization’s benefits package. This offering can help give employees peace of mind about saving for education. At the same time, it allows employers to create organizational loyalty, foster a pro-education work culture, and help change the current student debt trajectory.

SoFi at work provides access to platforms and information that will help you build the benefits you need to create a successful and loyal workforce.

Photo credit: iStock/PeopleImages

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