How You could benefit your Employees with a 529 Day Plan

529 Day is observed on May 29th to raise awareness about the importance of planning and saving for higher-education expenses through 529 plans.

With rising education costs, inflation, and market volatility, individuals can feel overwhelmed with future savings. According to Sallie Mae, in 2021, family income and savings covered more than half of college costs, but only 58% of families had a plan to pay for all four years of college.

Employers can aid their employees in navigating this obstacle by providing education-focused benefits and options, such as 529 plans. Many of your participants may not understand what a 529 plan is or how it can impact their college planning.

Your participants must know the fundamentals of this financial gem and how you can assist them in navigating their family’s educational needs.

What exactly is a 529 plan?

A 529 plan is a flexible investment account that allows families to make tax-deductible contributions and watch those funds grow tax-free. Once you’re ready to pay for education expenses, you can make tax-advantaged withdrawals from your 529 plan account as long as the funds are used for qualified educational expenses.

A 529 plan can fit any budget. Although some plans require a small initial deposit, there are no minimum contributions once your account is open.

Individual tax advisors can help your employees understand their situation better. Withdrawals made to cover qualified educational costs are generally exempt from income taxes at the federal and state levels. State-sponsored retirement plans, such as 529s, are open to participants from all over the country. It is possible to incorporate a 529 plan into your tax planning strategy because many states offer income tax deductions or credits (note that some may be limited to residents investing in the in-state plan) to encourage people to make contributions to 529 plans.

Types of 529 plans

Prepaid tuition plans and education savings plans are the two main types of 529 plans. At least one type of 529 plan is offered in each of the fifty states and the District of Columbia. A prepaid tuition plan is also sponsored by a group of private colleges and universities.

What is the purpose of a 529 plan?

A 529 plan may be used for qualified education expenses, such as room and board, books and supplies, semesters abroad, and apprenticeship programs. Also, you might be able to use money from a 529 savings plan to pay back part of your qualified student loans for elementary and secondary school.

Who can benefit from a 529 plan?

Your participants should be aware that 529 plans are not just for children. Any adult can start a 529 plan for anyone’s or their own future college costs. It’s also possible for anyone else, including parents, grandparents, aunts, and uncles, to contribute to the plan along the way.

A 529 plan’s beneficiaries can be changed anytime without paying fees or penalties, and there are no restrictions on the beneficiaries’ income or ages. This feature gives you even more flexibility regarding who can use the 529 plan proceeds, when, and why — for example, if your niece receives a full scholarship or your spouse decides to return to school.

Having a 529 plan doesn’t mean you can’t get financial aid. If you are a parent and manage a 529 account for your child, your child’s financial aid will be cut by no more than 5.64% of the account’s value. Nevertheless, the rules vary based on the relationship between the account holder and the beneficiary; therefore, you must consider this when making your selections.

Is a 529 plan suitable for your staff?

A 529 plan is an excellent solution for various educational planning needs because of its flexibility. However, it is essential to encourage your participants to investigate the options and ensure that they comprehend how this type of account would affect taxes, overall financial planning, future retirement needs, and the intended recipient. Then, they can make an informed decision.

Employers can add value by providing employees access to financial coaches, tax experts, or advisors to discuss their situations and explore tools and opportunities or by offering matching contributions to 529 plans or student loan repayment. Also, help your participants find and contact any 529 plans they’re interested in, so they can learn more about the plans’ specific rules and tax implications. Go the extra mile for them!

Regarding meeting their families’ financial and educational requirements, employees need to know that they have options and that you are available to assist them if they have any questions. More than two-thirds of Americans have never heard of 529 plans, according to a survey by the College Savings Plans Network in 2019. In addition to offering matching contributions, you can benefit your employees by educating them about 529 plans and instilling the idea that “the earlier, the better” when planning future educational expenses.

Please take note of the following disclosure: Assets can only be accumulated and withdrawn tax-free if used to pay for qualified expenses. Expenses eligible for reimbursement include tuition, fees, room and board, books, and supplies at any accredited post-secondary institution. Qualified education expenses include K-12 tuition beginning on January 1st, 2018, as noted in the Tax Cuts and Jobs Act of 2017. The new tax law caps qualified 529 withdrawals for eligible K-12 tuition at $10,000 per beneficiary per year, with state tax treatment varying by state. The tax treatment of K-12 withdrawals by many states is under review.

Before making such withdrawals, account holders should consult a qualified tax advisor, as they may be subject to adverse tax consequences. Earnings from non-qualified distributions are subject to federal income tax and a 10% penalty. 

Contact Information:
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Bio:
Mike was born in Chicago, Illinois on August 13, 1946. He was brought up in the
suburb of Skokie on Chicago’s northwest side and graduated from Niles Township (
East ) high school In 1964. Two years later he joined the US Air Force in November of
1966. After 2 years of Intense training he volunteered for Viet Nam and was sent to
Bien Hoa Airbase, which was 25 miles from Saigon, the nation’s capital. He
volunteered for a number of especially dangerous missions on his days off, such as
flying as a door gunner on a US Army helicopter and as a technical assistant on a
psychological operation on an Air Force O-1E observation aircraft. Capping off his
impressive accomplishments was winning the coveted Base Airman of the Month for
March 1969, a feat which was featured in the Pacific Stars And Stripes newspaper
read by every service man stationed in the Pacific theater of operations. After his
Viet Nam tour of duty he was stationed at Luke Air Force Base in Glendale, Arizona
where he met and married his wife, Lequita.
He graduated from Arizona State University in May, 1973, and after a 30-plus year
career as a financial advisor he joined a number of service organizations including
Easter Seals and Valley Forward, sponsor of EarthFest. He was also involved with the
National Federation of Independent Business and became the longest-serving
chairman of the Leadership Committee ever. He spoke before the ( AZ ) House Ways
and Means & Senate Finance committees. He then joined Disabled American
Veterans ( DAV ) in September of 2015. He rose quickly through the ranks and
became Chapter 8 Commander in May of 2019 where he served with Distinction for 3
years before being “ termed out”. The next year, as Vice Commander, he won the
title of National Champion Recruiter!