Higher education is likely one of the biggest expenses parents or individuals will fund in their lifetime. While many families and individuals aspire to save for higher education, it can be overwhelming and confusing to determine how best to accomplish this goal and avoid costly student loans in the future.
One savings avenue that continues to go underutilized is the 529 plan. Financial experts consistently tout the value of these tax-advantaged savings accounts that grow free from state and federal taxes when used for qualified higher education expenses.
But most people (68% according to a recent Edward Jones survey) don’t realize 529 plans are education savings tools available to pay for qualified higher education expenses at colleges, universities, community colleges and trade schools, and even a certain amount of tuition at K-12 schools. Even those who are aware of 529s are still not fully leveraging these accounts - relying on parents’ current income or hoping for financial aid and scholarships, which are not guaranteed.
Factor in the rising cost of tuition, many families and students are just not prepared to fund higher education, finding themselves forced to take out student loans.
There’s an opportunity to educate parents and individuals saving for higher education, and to help break the cycle of student loan debt. Research shows employees desire to learn more about 529 plans through their employer. In fact, 59% of employees indicated they would be likely to open a 529 account if one was offered at work1.
Offering a 529 benefit is relatively simple and straightforward, and part of a growing trend among Human Resources departments to develop or enhance a financial wellness benefit offering. Many state’s 529 plans offer employer programs that focus on increasing awareness and educating employees.
Price Waterhouse Cooper’s 8th Employee Financial Wellness Survey, conducted in 2019, reports that employees want to make their own financial decisions, but are looking to their employer to validate those decisions. Consider, only 24% of employers offer services to assist employees with personal finances, yet more than two thirds (71%) of employees say they’ve used the services.
Employees report feeling valued and appreciated as a result of these services and in turn may be more loyal to those employers who offer them.
On the surface, a 529 benefit may seem more appealing to families with young children but grandparents, aunts and uncles can, and do, open accounts. And because of the generous state income tax deduction for Virginia residents, employees planning on pursuing higher education for themselves may also want to consider opening an account and making contributions -- even if there isn’t as much time for the investment to grow compared to an account for a young child.
For employers who want to offer this education benefit, they should consider their home state’s plan first, particularly for those states that offer a state tax deduction, like Virginia (Virginia tax payers can receive a tax deduction of up to $4k on their state income tax return per year for contributions to each Virginia529 account owned).
While employers may like to offer the same benefits and education opportunities for all employees, larger, national employers might consider offering multiple 529 plans to ensure employees know about their home state’s income tax deduction.
Virginia529, the nation’s largest 529 plan and three-time recipient of investment research firm Morningstar’s Gold rating, is available to help employers educate their employees through its comprehensive employer program, Virginia529@work. It’s a free and easy-to-administer, education-based benefit program.
Virginia529 representatives facilitate onsite events and provide program material. Through this benefit, employees are empowered with knowledge about how to save for higher education, reducing financial stress while improving employee productivity and satisfaction.
Get started today with Virginia529@work. Contact your Virginia529@work representative to learn more.
1. Strategic Insight 529 Industry Analysis 2017