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When her employer announced that it would match employee contributions to college savings accounts in late 2012, Amber Colley, a mother of three, immediately began putting aside the maximum amount of $2,500 annually.
"It's almost free money, why wouldn't you?" says Colley, who work for Dun & Bradstreet, a business credit reporting agency, in its Greensboro, North Carolina office.
Nearly three years later, she has about $20,000 saved in that account for her oldest, a 16-year-old, thanks to the company match and earnings on her 529 plan, or tax-advantaged college savings account.
[Discover the pros and cons of college savings plans.]
Unlike the much more common 401(k) retirement account match often offered by employers, a college savings match is cutting edge. But new legislation in Nevada may give companies more incentive to follow Dun & Bradstreet's example.
The law, which will go into effect Jan. 1, provides a 25 percent tax credit for employers who make a matching contribution to a qualified Nevada 529 college savings plan, up to $500 per employee. Illinois has offered a similar tax credit to businesses since 2009.
Andrea Feirstein, managing director of AKF Consulting Group, a strategic adviser for the college savings industry, says she believes getting employers involved in college savings is "the next new frontier" for helping people save for college.
"It's a great tool for an employer to hang onto a valued employee," she says.
While offering a match is rare, some employers are trying to make it easier for workers to save by offering automatic payroll deductions into a college savings account. At TIAA-CREF, which manages plans 11 state 529 plans, approximately 3 percent of all monthly contributions are remitted as payroll deductions, says a spokeswoman for the company.
"Doing payroll plans is time - consuming and costly for a program manager, but it really goes right to the public purpose that the states want to serve and accomplish, which is getting more people to sign up and contribute regularly even if it's small dollar amounts," Feirstein says.
She added that by including a college savings payroll deduction with other company benefits, it gives college savings plans more visibility to young employees who may not otherwise have a designated college savings account.
"When things are automatic they impose discipline," she says. "It makes it almost too easy to not do it."
Whether the Nevada tax credit will prompt more companies to go the next step and offer a matching contribution remains to be seen. In Illinois, which has had a tax credit program for more than five years, there are only a handful of businesses taking advantage of it, says Greg Rivara, spokesman for the Illinois State Treasurer.
[Learn three ways to utilize workplace benefits for 529 plans.]
FONA International, a flavor manufacturer for the food and beverage industry based in Geneva, Illinois, will contribute $250 to an employee's Illinois 529 account at the end of the year if the employee has actively been saving for college through payroll deduction. The company contribution is discretionary based on whether FONA has met its financial goals for the year, says Lindsey Clark, compensation, benefits and HRIS manager for the company.
The Dun & Bradstreet benefit, called EdAhead, matches the contributions of full-time employees to a Putnam 529 college savings account -- up to $2,500 for eligible employees . The company also gives a matching dollar amount to the school district where the employee's office is located.
"It is one of the things that we hear most that people like about our company who work there," says Jeff Stibel, vice chairman of Dun & Bradstreet. "It is one of the things that put people over the top to work here, and it is one of the things that people say they will regret if they leave."
And while Stibel says a number of companies have contacted Dun & Bradstreet about mirroring the plan, he says one sticking point is the issue of taxes.
T he money in a 529 plan grows tax-deferred and can be taken out for qualified education expenses tax-free. But employees still need to pay federal -- and sometimes state -- taxes on the amount employers are contributing as if it were income.
Dun & Bradstreet gives its employers a sum to cover the taxes, but Stibel says this is "prohibitively expensive for most businesses."
"It's a bit absurd, but for us, we're making a point," he says. "Education is important."
[Beware of five myths about changing the beneficiary on a 529 plan.]
Colley, the mother who works at Dun & Bradstreet, says she splits her contributions among her three children. She's putting aside the most for her oldest but also named a cousin as a beneficiary. He was able to use some of the money to help pay tuition this fall.
"For me, the biggest rewarding factor was to be able to help the cousin ," she says, who otherwise would not have had the means to go to college without taking out a loan .
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
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