For many managers and executives, the challenges facing their companies aren’t getting any smaller. They know they need to embrace innovative technologies such as artificial intelligence (AI), maintain their cybersecurity, and build products that keep the competition at bay. A single misstep could transform even the strongest record of profitable success into organization-crushing failure.
It’s a lot for any leadership team to oversee. Fortunately, legislative changes to 529 savings plans could give these managers and executives more access to top-notch tech talent—provided they figure out how to successfully integrate those plans into their companies’ current benefits packages.
For years, 529 savings plans have been widely known as a tax-advantaged vehicle for parents who want to save for their kids’ college education. The mechanics are straightforward: you contribute after-tax money into an investment account, typically a portfolio of stocks and bonds. Those funds grow tax-free and can be withdrawn (also tax-free) for qualified educational expenses. Certain plans also provide an option to prepay future tuition at participating universities.
Thanks to new language in the H.R. 1 budget reconciliation bill recently signed into law, 529 savings plans can now serve as a tool for new avenues of professional development. The updated rules open 529 funds to pay for eligible credential programs and nondegree training—and almost needless to say, that’s a major boon for tech pros who want to boost their skills.
If you’re a software engineer, IT help desk technician, or other tech specialist, the opportunity is clear: you now have a tax-advantaged method to fund the certifications and skills needed to advance your career.
“The 529 expansion is a big deal—it’s the first time we’re seeing policy catch up to how modern tech talent is actually built,” said Nikita Sherbina, co-founder and CEO of AIScreen, which builds digital signage software. “We’re already hiring candidates with credential-based training over degrees in areas like UX, QA, and digital ops. Allowing 529 funds to cover non-degree programs democratizes entry into tech, especially for career switchers and underrepresented groups.”
Communicate the benefits
It’s important to recognize that the changes to 529 plans are recent. Nonetheless, companies that need specialized talent should evaluate how these plans could impact their workforce.
“While the legal framework for employer contributions to 529 plans is still evolving (and currently taxed as compensation), there’s still opportunity here,” said Trent Von Ahsen, a partner at Cedar Point Capital Partners who specializes in education savings, wealth management, and tax planning. Actions companies could take, according to Von Ahsen, include:
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Educating employees about the updates to 529 legislation, focusing on the expansion in eligible training and certification.
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Integrating conversations about 529 savings plans into any existing financial wellness programming; for example, a company could build a learning module breaking down how plan funds could be used.
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Partnering with eligible training providers to design programs that meet workforce needs, while encouraging employees to consider paying for that training with 529 funds.
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Contributing directly to employees’ 529 savings accounts; however, as Von Ahsen indicated, it’s critical for employers to communicate that any such contributions will count as taxable compensation—and, depending on the state, the employee may receive a state tax credit for 529 contributions.
“The bottom line: 529s have traditionally been seen as college savings tools, but they’re now
becoming part of the upskilling conversation—especially in industries like tech where lifelong learning is the norm,” Von Ahsen added.
Employers that help employees fund their 529 plans can also enjoy some tax benefits, depending on their state. In Idaho, for example, employers that make direct contributions to employees’ 529 accounts are eligible for a 20 percent state tax credit. It’s a similar story in Colorado, where the allowable credit is equal to 20 percent of contributions made by the employer, albeit capped at $500 for each taxable year. Employers in Pennsylvania can likewise claim a tax credit.
A new retention tool
Sit down with a tech recruiter or hiring manager, put them at ease, and they’ll likely talk for hours about the difficulties in hiring specialized talent right now, particularly in tech. Companies everywhere are figuring out the right mix of compensation and benefits that will attract and retain talent, including flexible schedules, help with dependent care, and in-office perks.
The new 529 savings plans can give companies a bit of a competitive edge when it comes to hiring and retention. A few years ago, a report by financial services company Ascensus found that, while 7% of employers offered a 529 plan, some 49% of workers were interested in it as a benefit.
“By introducing a 529 plan as a voluntary benefit, employers can help empower their workforce to take control of one of life’s bigger financial challenges, funding education, while simultaneously adding a new feature to their recruitment toolkit,” that report added. “That step, in turn, can help attract and retain top talent at a time when demonstrating a culture of caring matters most.”
The recent expansion of 529 savings plans may only make them more attractive to employees. Should companies want to launch any kind of program—whether it’s payroll deductions to a 529 savings plan, matching contributions, or some other initiatives—they should consider the following:
- Workforce demographics: Does your company have employees who are anxious for help with their 529 plans, such as mid-career specialists with kids in college, or Millennial workers who want to aggressively upskill? It might be worth launching an in-house survey to see how they feel about a potential 529 benefit.
- Needed skills: What skills does your company desperately need? A strong 529 plan benefit can help close those skills gaps by funding certifications and training.
- Competitive landscape: Are your competitors funding 529 plans? Is there an opportunity to explode onto the scene with a new benefit that draws in valuable talent?
- Geography: Depending on your location, can a 529 plan benefit translate into significant state tax credits or other savings?
Here’s the bottom line: the 529 savings plan—long viewed as a way for parents to pay for their kids’ college tuition more efficiently—is now an even stronger way for people to fund all kinds of upskilling and training, including certifications and non-degree training programs. It’s a game-changer for tech pros… and for companies, it’s a powerful tool in the competition for talent.
By educating employees about the new 529 rules or even contributing to their accounts, businesses can close internal skills gaps, retain workers, and craft a culture of continual learning. And in turn, that can help managers and executives better face tomorrow’s workplace challenges.
This material is provided for informational purposes only and does not constitute tax, legal, or accounting advice. This article summarizes some portions of 26 U.S. Code § 529 and recent amendments thereto but does not reflect all aspects of this statute. Eligibility for using 529 funds for educational expenses depends on individual situations, state laws, and the terms of a specific 529 plan. Readers should consult a qualified tax professional and their 529 plan administrator to verify eligibility and evaluate how these changes may impact their individual circumstances before making any decisions.