New Employee Benefit: Help With Saving for College
Automatic payroll deductions fund 529s, and some bosses kick in cash.
As the cost of college rises, some employers are making it easy for workers to stash away cash for their kids’ education. A small but growing number of companies allow workers to fund 529 college-savings accounts with direct withdrawals from their paychecks. And some companies sweeten the deal, matching employee contributions.
In 2016, 11% of companies offered a 529 benefit, according to the Society for Human Resource Management’s annual survey of the organization’s members. Contributions are made after federal taxes, and most states offer tax breaks for residents who invest in the state-sponsored plan (five states offer deductions regardless of which state’s plan you pick). Your investment grows tax-free, and earnings escape tax completely if withdrawals are used for qualified higher-education expenses.
Marketing agency VML, headquartered in Kansas City, offers employees the option of directing a portion of their paycheck to a 529 account. Tosha Turner (pictured above with her husband Marcus and children), 43, director of finance, is socking away cash each month to help cover college expenses for her 8-year-old twins Lyric and Lincoln. The automatic saving plan is both easy and effective, says Turner. “This takes the onus off me, and we’re definitely making more progress,” she says.
If your company doesn’t kick in money to match your investments, make sure that the plan offered is as good as one that you could get on your own. For example, some employer-sponsored plans may limit you to 529s offered by certain states (forcing you to forgo tax breaks if you live across state lines), or they may carry higher fees or be a poor fit for your investment style. Compare options at www.savingforcollege.com.