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Corporate 529 Plans to the Rescue for Millennial Parents and Employers

Despite all the headlines about millennials starting families late, many millennials are now starting to have kids or are preparing to start a family soon. This may be due to millennials feeling more confident in the outlook of their career paths, as well as feeling more secure with the job role that they’ve been able to hold onto for a few years. While there are still some challenges for millennials who are battling to pay off credit card debt and student loans, some millennials are finally getting a breath of fresh air from the debt suffocation. With student debt being one of the reasons while many did not sleep well at night, avoiding that same headache for their offspring will be at the top of their priority list.

According to the College Board, the average four-year private school can costs more than $45,000 a year, and the average four-year public school can costs around $25,000. While many will be sure to educate their offspring on financial responsibility, some will be taking the proactive approach by putting a financial plan in place. As an employer that hires millennials as part of their workforce, you have the ability to take a leading role in helping them with the financial burden they may face down the road. Human resource professionals are now looking to their workplace- benefits packages as a means of making it easier for employees to save money for future college expenses by using corporate 529 plans.

Corporate 529 plans may not be considered your typical employee benefit, which by definition is a form of compensation paid by employers to employees over and above the amount of pay specified as a base salary or hourly rate of pay. However, they do allow employees to receive certain benefits that they otherwise would not be able access on their own. Also, the plans are easy to implement and employers can coordinate payroll deductions through their payroll provider. So what are 529 plans? 529 plans are tax- advantaged investment accounts that are designed to help families pay for college. They are very helpful because the earlier you start saving money in the plan, the greater the benefit from the tax free compounding.

Under a corporate 529 plan, employees can contribute after-tax dollars to an investment account, which then grows free of federal taxes. Presently, 529 withdrawals are tax-free as long as the funds are spent toward qualified higher education expenses, such as tuition, books, supplies, room and board, and computers. With new tax bill, parents can now use up to $10,000 per year for K-12, along with access to use any amount needed for college. This change in the tax bill gives families the opportunity to save tax-free for religious and private schools.

One last thing to highlight before we take a look at the benefits below is the savings one will receive when participating in a corporate 529 plan. Many 529 plans will waive the sales load when the plan is setup through a financial advisor. This is a huge savings that can add up as the plan grows!

 

Let’s take a look at some of the benefits below:

Employer Benefits:

  • Provides another great benefit to your employees at no cost to you
  • Easy administration and can be set up for payroll deduction through the payroll company
  • A way to help employees save for the cost of college education for their kids or grandkids
  • Strengthens employee loyalty

Employee Benefits:

  • Provides an easy way to save for college and puts a financial plan in place
  • Anyone can invest on behalf of your child- Parents, grandparents, aunts, uncles and friends can all contribute to the child’s account
  • Employees can make regular, consistent contributions to their accounts, which will grow tax free

 

529 plans are a great way to show your employees that you have an interest in their financial wellbeing. As studies have shown, employees that feel valued at work tend to be more productive and aligned with company goals.

If you would like to find out more information about the corporate 529 plan, feel free to contact me at Chris.Cooper@raymondjames.com.

 

Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Past performance is not indicative of future results. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider before investing, whether the investor's or the designated beneficiary's home state offers any tax or other benefits only available for investments in their home state's 529 plans. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state.

Posted by: Christopher Cooper, MBA Finance @ 8:00:00 am  Comments (0)

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