Advisors Get New Playbook As 529 Plans Expand, EBRI Suggests
Financial advisors have new ground to cover with clients on education savings thanks to a widening set of uses for 529 plans and the so-called Trump accounts, according to the Employee Benefit Research Institute (EBRI).
One large shift for 529 plans is that qualified expenses have expanded in ways that matter well beyond four-year college students, experts at an EBRI webinar said yesterday. Apprenticeship program costs are now covered, and Congress has since added postsecondary credential expenses.
“Traditionally, 529s were seen as for college. Now we’re talking about apprenticeships,” said Paul Curley, CFA and executive director at ISS Market Intelligence.
“If you’re a CPA or a CFA, those credentials are qualified expenses, but so are the credentials for nurses and teachers.”
Curley spoke during the webinar along with Craig Copeland, EBRI’s director of wealth benefits research; Timothy Flacke, co-founder and CEO of the nonprofit Commonwealth; and Stacey Torkelson, who works in government relations at Ascensus, a provider of retirement and savings plans.
Federal guidance released last month on Trump accounts, the 530A savings vehicles that give eligible children a $1,000 federal seed contribution, covered direct employer contributions, employee salary reductions, reporting requirements and nondiscrimination testing, Copeland said. But administrative infrastructure remains a bottleneck: Unlike a 529 plan, there is no single trustee handling a given employer’s accounts, since each employee picks a provider.
“There still isn’t guidance on everything that needs to be known to start these programs,” Copeland said, which is keeping many employers on the sidelines for now.
The two accounts also get different treatment for financial aid purposes, something advisors will want to flag for clients. A 529 plan counts as a parent asset on the FAFSA, not the child’s. But Trump accounts are expected to be treated differently.
“My assumption is that it’s a TBD, but it’ll be treated like a brokerage account. It’s an asset of the student,” Curley said. Official Department of Education guidance was still pending as of July, Torkelson said.
On sequencing investment dollars, Flacke suggested advisors give clients a simple rule of thumb: check the retirement match first. “If there’s some kind of fairly straightforward rule of thumb one could offer to workers, it’s check to see what your available retirement match is before you consider this,” he said.
Copeland added that EBRI research found little crowd-out between HSA and 401(k) contributions, suggesting clients can often fund multiple savings goals without one cannibalizing another, and that 529 and 530A plans shouldn’t be any different.
Employer contributions are still underused, and advisors whose clients get a match should treat it as a source of essentially free money. Only about 10% of employers offer 529 payroll deduction and 2% make an employer contribution, Torkelson said.
Yet simply flagging a 529 plan to employees who don’t have one is enough to move most of them to action, Flacke said.
Advisors should also remind clients that underfunded education savings has a way of showing up later as retirement leakage. Forty-one percent of workers saving for both goals have tapped retirement accounts to cover tuition, Flacke said, citing JPMorgan Chase data.
Curley and Torkelson both cautioned against treating 529s and Trump accounts as competing products. “It’s not one versus the other,” Curley said. “They are used in different ways for different goals, for different groups of folks and goals.”
Torkelson agreed: “It’s a matter of balance about your priorities and where that next dollar fits best for each individual person.”
