Corporate 529 plans may be revenue source

AUG 25, 2013
Financial advisers with some expertise in college planning may want to consider helping companies set up Section 529 college savings plans for their employees. Companies can create an employee benefit program for their workers that automatically deposits funds into tax-advantaged 529 plans. Much the same way that many advisers supplement their individual-client advising business by helping firms set up 401(k) plans for their employees, knowledgeable advisers could help companies create this little-known benefit.

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The 2012 Plansponsor Defined Contribution Survey found that only about 15% of companies that sponsor 401(k) plans also offer 529 plans as an employee benefit. Winnie Sun, founding partner of Sun Group Wealth Partners, helped ReTargeter LLC create its corporate 529 plan several months ago. Employees were quick to see the value of the benefit, she said. “We met with dozens of employees and talked to them about the use of 529 plans and the accessibility of having employers do direct deposit,” Ms. Sun said. “Employees embraced the idea quickly.” Making the plans available to employees helps companies retain workers and can be offered pretty cheaply, Ms. Sun said. Companies with 200 or more employees typically can get the 529 plan costs waived, she said. “In a time where many companies have had to reduce benefits because of the cost, this is an almost free benefit,” Ms. Sun said. The biggest challenge for advisers is educating firms about the benefits of 529 plans, which are named for the section of the Internal Revenue Code that created them, and explaining how companies can create programs that allow employees to invest in different state 529 plans, she said. It is good practice for a company to offer employees a choice of 529 plans because many state plans offer residents a state tax break, said Joe Hurley, founder of SavingforCollege.com. All plans offer the federal benefit of tax-free use for qualified college expenses. Proposed federal legislation, HR 529, would allow employers to provide up to a $600 pretax match to employees' 529 plans and could boost use of corporate 529 plans. But Mr. Hurley, author of “The Best Way to Save for College: A Complete Guide to 529 Plans” (Saving for College LLC, 2013), said that the revenue implications of HR 529 are likely to hold back passage of the measure, which was introduced in February. Only Illinois offers employers a tax incentive for matching worker investments in 529 plans, he said.

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