What is a 529 account?
A 529 account is a tax-advantaged investment account designed to help employees save for qualified education expenses. Funds grow tax-free and can be withdrawn tax-free for eligible costs such as tuition, fees, books, and certain room and board expenses. There are two main types of 529 plans:
- Education Savings Plans: Invest assets for potential growth over time.
- Prepaid Tuition Plans: Lock in tuition rates by purchasing credits at current prices.
While 529 contributions are not deductible from federal income tax, many states offer state tax deductions or credits for contributions. Additionally, qualified withdrawals for education expenses are federal and state tax-free. Employers and employees can review the IRS guidelines on 529 plans for more details: IRS 529 Plan Information.
How much does it cost to offer the 529 benefit?
There is no additional cost to offer the 529 benefit. 529s are included by default in Betterment’s Pro and Flagship pricing tiers. You may opt out of offering 529s, but doing so will not change your pricing.
Can we offer a 529 plan without an employer match?
Yes, you can offer a 529 benefit with or without an employer match. The benefit is available to employees regardless of whether you choose to match their contributions.
How does 529 matching work?
If you choose to offer a match:
- Betterment supports a single-tier match, meaning you can match 100% of employee payroll contributions up to a percentage you define.
- There is no vesting period for employer matches—once a match is processed, it is contributed directly to the employee’s 529 plan.
- 529 plans have contribution and balance limits, but Betterment does not track employer contributions toward the limit or send notifications when limits are reached.
Does plan eligibility apply to 529 accounts?
Yes. Betterment applies the same eligibility rules across all employer benefits. For example, if your plan requires a 6-month service period before employees can enter the 401(k), the same requirement applies to the 529 benefit.
How does payroll work for 529s?
Betterment does not currently support direct payroll integration with 529 accounts. However, when you download your payroll template, you will see designated fields for 529 contributions included. Also, 529 and 401(k) contributions are processed separately, meaning they will be deducted from your employer’s bank account in two separate ACH transactions.
What happens to a 529 upon employee termination?
If an employee has already set up a 529 account, they can continue using it after leaving the company. However, payroll deductions will be deactivated automatically. If they haven’t set up a 529 yet, they will no longer see the option to enroll once their employment status or benefit offering changes.
Related Articles