529 plans help employees invest in children’s futures

When saving for the future, many people opt focus on their children’s opportunities rather than their own. The College Savings Plan Network encourages employers to offer benefits options, such as a 529 college investment plan, to help their employees save for their children’s college educations.

“There’s a lot of increase in plans using payroll deduction and offering them as employee benefits for companies,” said Betty Lochner, program director for Washington state’s 529 plan—called Guaranteed Education Tuition—and chair of College Savings Plans Network, a national nonprofit association that promotes Section 529 College Savings Plans and Prepaid Tuition Plans.

When programs like this are handled by a benefits department, many companies will make one-time contributions to these accounts.

See also: Obama to drop proposal to repeal 529 college tax break

“We would like to increase that presence. Most people hear about saving for college or saving in general from their employers. That’s where people are actually thinking about it,” Lochner said. “We are trying to increase our presence in all companies, big and small, especially the ones that can offer a benefit.”

In Washington, Lochner is working with Microsoft to institute payroll deduction for 529 plans. They also are looking at creative ways to include this type of investment as part of the company’s overall benefits package.

Having more companies offering payroll deduction for 529 plans makes it a simpler process for people to open an account.

“Our goal is to just really take away barriers and help families with financial literacy and how important it is to start really early,” she said.

Lochner encourages people thinking about starting a family or who have just had a baby to consider opening up one of these accounts. She points out that if people wait until their children are in middle school, the account won’t help them pay for much. If they begin saving really early, it gives that money 18 years or more to grow into a balance that can really offset the burgeoning costs of a college education.

 In 2014, total investment in 529 plans reached a new milestone, growing by $20.8 billion to reach a high of $247.9 billion.

Total assets grew by 9.1%, including contributions and investment returns, according to College Savings Plans Network. The number of accounts grew from 11.6 million in 2013 to 12.1 million in 2014.

See also: Providing a comprehensive total employee benefits package

Savings plans are offered in 49 states and Washington, D.C. Every plan is different, but most 529 plans offer a variety of age-based investment options where the underlying investments become more conservative as the beneficiary gets closer to attending college.

“Our goal is to build awareness and take away barriers” when it comes to these types of savings vehicles, said Lochner.

Her organization wants to make sure people know about 529 plans and how accessible they are. Traditional 529 plans behave like a mutual fund, where earnings are based on the stock market performance of the investments. Prepaid tuition plans allow people to set money aside at today’s college tuition rates and have a guaranteed defined benefit at future tuition costs when the account is used for school-related expenses.

Prepaid tuition plans are offered by 12 states and one not-for-profit organization, so they don’t have the reach of traditional plans. They are portable, however, said Lochner, meaning that if you buy a state’s prepaid plan you can take that money and use it elsewhere. Most of the restrictions about where you can spend those prepaid dollars have gone by the wayside, she said.

Lochner recommends buying a 529 plan directly from the state that is offering it instead of through a broker so you don’t have to pay fees or commissions.

See also: Keep it simple: Getting the retirement message to employees

“It is a disciplined way of saving that is protected. When you open up a 529 plan, you are the owner on the account. You don’t run the risk of somebody else taking out that money,” she said. “It is protected so only one person owns the account and one person is named as beneficiary on the account. You know it will be used for education.”

Money is set aside in these accounts pre-tax. If, for some reason, the beneficiary you named decides not to use the money for education, it can be withdrawn at a penalty. Every plan has its own rules.

Children who have a college savings account in their name are seven times more likely to graduate high school and go on to higher education, Lochner said.

“It’s not just about saving money and making college more affordable for families. It is also instilling in your children that they are going to college,” she said.

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