|Question: What can you tell me about employer-sponsored 529 plans?|
As 529 plans grow in popularity, companies are beginning to offer employer-sponsored 529 plans as part of their employee benefits packages. However, the term "employer-sponsored 529 plan" is somewhat misleading--the plan itself is not sponsored by the employer; rather, it is the means of contribution (i.e., automatic payroll deduction) that is sponsored. Having your 529 contributions automatically deducted from your paycheck is one way to make it easier to save for college. With this type of forced savings, you don't "miss" the money and won't be tempted to spend it on something else.
Once you enroll in an employer-sponsored 529 plan, your account works just as if you had opened an individual 529 plan account. But unlike the process of opening an account on your own--where you have an unlimited number of plans to choose from--your participation in an employer-sponsored 529 plan is limited to the 529 plan(s) that your employer has selected. So, it's important to do some research before you sign up for your employer's plan. Look into the types of investment choices that are offered by the plan. Is there a broad range of investments to choose from? Also find out if there are any plan restrictions (e.g., your child must attend college in state) or required fees. Most importantly, if your employer offers only 529 plans that are sponsored out of state, find out if you'll be missing out on any state tax benefits available if you were to contribute to your own state's 529 plan (e.g., a state income tax deduction for contributions).
If your employer doesn't offer a 529 plan or if you are unsatisfied with the plan(s) that your employer offers, you can still save in a 529 plan by opening an account on your own.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.