A Company Match for College Savings
Those fortunate enough to have a workplace retirement plan know that one of the incentives for participating is that many companies offer to match at least part of your contribution.
So, why shouldn't the same format be used to encourage saving for education? People would probably be motivated to save more for their children's college education — and end up borrowing less — if their employer helped with matching contributions.
That's the idea behind a new benefit offered to employees of the Dun & Bradstreet Credibility Corporation, which provides credit-building services to small businesses. Dubbed "EdAhead," the plan matches the contributions of full-time employees to a specific 529 college savings plan and does so with company dollars.
Jeffrey Stibel, the company's chief executive, said he hoped other companies would adopt similar programs. "One of the biggest problems we have is finding talent, and it starts with education," he said. "Education is more important than retirement."
The company will match annual employee contributions of up to $1,000 for hourly workers and $2,500 for salaried employees. The plan had its debut last month, but employees can participate for this year with a lump-sum contribution to get the full match if they choose, Mr. Stibel said.
Eligible beneficiaries of EdAhead accounts can include employees, their children or the children of other family members or friends. Contributions to 529 plans aren't free from federal income taxes, as contributions to 401(k) retirement plans are, but the company will add to the employer-matched portion an extra amount to help offset these taxes. And any investment gains on plan savings are tax free as long as the money is used for education costs later on.
In addition to matching employee contributions, Dun & Bradstreet Credibility will make an equivalent contribution to local school districts where the company has offices. The company has roughly 600 employees in five states: Pennsylvania, North Carolina, New Jersey, California and Arizona.
The EdAhead plan is administered by Putnam 529 for America, the 529 plan sponsored by Nevada and run by Putnam Investments. Mr. Stibel said the Putnam plan was chosen because it was "cost effective" and also because Nevada was "neutral" for the company; it doesn't have any employees there.
Anyone can invest in a state's 529 plan; you don't have to be a resident of that state. But some states offer a tax deduction or credit on your state tax bill, if you contribute to its 529.
It appears that employees in most Dun & Bradstreet Credibility offices won't have to forgo any state tax benefits to invest in Putnam's Nevada-based plan. According to Web site finaid.org, California and New Jersey don't offer any state tax benefits for 529 contributions. Pennsylvania and Arizona do offer tax benefits but allow them regardless of what state's plan is receiving the contributions. North Carolina offers a deduction for in-state participants in its 529 plan of up to $2,500 for single filers and $5,000 for joint filers; workers in that state should see which option works better financially for them.
Mr. Stibel said it would have been an "administrative nightmare" to allow matching for contributions to multiple state plans. But, he said, it's possible to contribute to more than one 529 plan. His employees could, for instance, contribute to the Nevada plan through the company and get any available state tax benefits by contributing to their state's plan, too.
What do you think of the EdAhead plan? And what do you think would happen if you asked your employer to do something like it?