Why More Employers Are Adding 529 College Savings Plans

Forbes

a day ago

Years ago, I helped sign up one of the earliest corporate college savings '529' plans here in Southern California. It enabled a large entertainment-industry company to help their employees take advantage of this very popular way of saving for their kids' higher education. Parents loved this long term savings program, conveniently offered at work.
Why 529s are growing in popularity: Employers are increasingly adding 529 college savings plans to their benefits packages. These tax-advantaged plans help employees save for education costs—from K-12 tuition to college and job training to apprenticeships. The federal SECURE 2.0 Act (effective in 2024) introduced major enhancements, including allowing certain unused 529 funds to be rolled into a Roth IRA. With student debt at record levels and talent retention a top HR concern, 529 plans offer a strategic, future-focused benefit that supports both financial wellness and workforce stability.
The 4-1-1 on 529s: A 529 plan is a state-sponsored, tax-advantaged savings account for education expenses. There are no taxes on investment gains while funds grow. And withdrawals are tax free for qualified higher-education expenses. Considered a parental asset, they affect financial aid eligibility by just 5.(college, K-12 tuition, apprenticeships.Considered a parental asset, they have minimal effect on financial aid eligibility. One type, a prepaid tuition plan, locks in future tuition rates at today's costs. Another type, an education savings plan, is investment based and is popular among businesses and families.
Why should businesses care now? Offering a 529 plan can be a powerful recruitment and retention too as employees, especially Millennials and Gen Z — are seeking financial wellness benefits. Education costs (for themselves or their children) are a top concern, and 529 support is increasingly viewed as a compelling, family-focused benefit. Moreover, employees now can roll over unused 529 plans (up to a $35,000 lifetime) into a Roth IRA, provided the 529 has been open for at least 15 years. (Certain other conditions apply, so check with your employer or your financial advisor before attempting a rollover.) The Roth rollover options adds long-term value and flexibility—eliminating the fear of 'wasting' funds if a beneficiary doesn't go to college.
The Employer Contribution feature: Employers may contribute directly to an employee's 529 account, facilitate payroll deductions (employee-funded, employer-enabled),offer matching contributions (e.g., $100/month) or seed funding (e.g., $250 at onboarding or birth of a child). Employer contributions are generally treated as taxable income to the employee unless your state offers an exemption. Contributions are not deductible at the federal level, but over 30 states offer state-level deductions or credits. Some states (e.g., Indiana, Illinois, Colorado) offer employer tax credits, such as Indiana's credit of up to $1,500 annually.
Important: Employers should clearly communicate any tax implications to employees during onboarding or benefits education.
What's in it for employers? Offering a 529 plan helps an employer stand out in a competitive hiring market, support employee family financial goals and promote financial wellness, which promotes reduced stress and higher productivity. The plans are low cost, especially when structured as employee-funded and provide the option of combining with student loan repayment assistance.
How to implement it: Choose a 529 provider from among a range of state-sponsored plans or national platforms. Decide on your contribution model: match employee contributions monthly or offer one-time seed money. Use direct deposit or third-party services (such as Gradifi, Paidly) to automate via payroll. Promote your program clearly, use HRIS data or surveys to measure engagement and tailor the program. And leverage voluntary models (Some states offer turnkey, no-admin options for employers (e.g., Colorado's CollegeInvest).
Taxing and compliance implications: There is no federal deduction, but check for state-level benefits.'Parity states' like Arizona, Kansas, and Pennsylvania allow tax breaks for contributions to any state's 529 plan. There is a Gift tax exclusion for 2025: $19,000 per beneficiary ($38,000 for married couples)—useful for business owners and execs using 529s as part of wealth or estate planning. Post-tax contributions made via payroll are generally not subject to FICA. Note: Always consult a tax advisor or benefits attorney to ensure compliance with federal and state laws.
Some common misconceptions about 529 plans:
False: '529 plans are just for parents.'
Fact: Anyone—including business owners—can open or contribute to a 529 for employees, family, or estate planning.
False: 'Employer contributions are tax-free for employees
Fact::They're usually taxable income unless a state exemption applies.
False: 'We must use our state's plan.'
Fact: Not always. Parity states offer tax breaks for contributions to any plan.
False: 'If the child doesn't attend college, the money is wasted.'
Fact: The money can be used for other forms of post-secondary education, such as trade school. And, thanks to SECURE 2.0, unused funds can be rolled into a Roth IRA (up to $35,000).
False: 'It's too complex to manage.'
Fact: Today's platforms and state programs make implementation simple—even for small businesses.
False: 'If we can't afford matching, it's not worth it.
Fact: Just facilitating payroll deductions and educating employees adds real value.
Future trends and strategic positioning: Education savings is becoming a top-tier benefit, on par with health insurance and 401(k) plans.Millennials and Gen Z—now dominant in the workforce—want support for family-building and debt reduction. 529s will increasingly integrate with financial wellness platforms, alongside HSAs, 401(k)s, and student loan repayment. States are likely to expand incentives and portability to encourage employer participation.Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.