Employers Can Promote 529 Use Among Low-, Moderate-Income Employees

Federal 529 college savings plans are powerful tools to help fund higher education, but employees with low to moderate incomes face barriers to understanding and adopting the vehicles, according to new research from Commonwealth.

Parents with household incomes greater than $100,000 held 37% of their college savings in a 529 account, while parents with annual income between $35,000 and $100,000 utilized the same vehicle for only 17% of their college savings, according to a 2018 study cited in Commonwealth’s report. Meanwhile, 79% of parents living in households with low to moderate incomes, defined as those earning between $25,000 and $80,000 per year, expressed interest in opening their first 529 account if their employer offered one as a workplace benefit, according to a 2024 study from the organization.

Commonwealth Inc. is a national nonprofit focused on building financial security and opportunity for financially vulnerable people.

Federal 529 plans are tax-advantaged education savings and investment vehicles, operated by a state or educational institution. Contributions to 529 plans are made after tax, but capital gains and distributions are tax-free for qualified educational expenses. Some states offer state income tax deductions for 529 plan contributions.

In the first quarter of 2026, total assets under management by 529 college savings plans totaled $569 billion across 17.1 million accounts, up from $500 billion across 16.3 million accounts one year earlier, according to data from ISS Market Intelligence, which, like PLANADVISER, is owned by ISS STOXX.

Recent legislation—including the Tax Cut and Jobs Act of 2017, the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022—has expanded how funds from 529 plans can be used to fund post-secondary education, such as for apprenticeships, community college, trade and technical programs, and workforce certifications. As of 2018, qualified education expenses can include up to $10,000 per year for elementary or secondary school tuition, according to information from the Internal Revenue Service. College attendees can use the funds to cover the cost of books, educational supplies, required fees, room and board, and student meal plans.

ISS MI reported that upcoming changes in legislation, product offerings, marketing strategies and distribution channels are likely to fuel further expansion over the next three to five years, driven by the inclusion of more qualified expenses that can be paid from the accounts, an expanding customer base and greater economies of scale.

Expanding Access by Simplifying Adoption

J.P. Morgan Asset Management’s “2026 College Planning Essentials” report, released in March, found that 60% of all U.S. families do not use 529 plans and that many rely on cash and taxable accounts to fund educational expenses. Of all respondents, 41% reported tapping into their retirement accounts to pay for college.

Commonwealth’s report stated that offering 529 savings as a payroll-deducted benefit, alongside retirement and health benefits, can offer a “trusted, low-friction” entry point into 529s accounts for workers across all income levels.

To support employee use of the vehicles, employers can embed 529 enrollment at “key moments” of an employees’ life, such as new-hire onboarding or at the time of an adoption or birth of a child. Commonwealth reported that such employer support could be especially powerful if using automatic enrollment. Another option for plan sponsors is to integrate 529 savings at the point of pay for other benefits—when employees are already making retirement decisions. This could expand access to workers across income levels.

Providing Support

The Commonwealth report also suggested that artificial intelligence could increase employees’ awareness of and receptivity of 529 accounts: A 2024 Commonwealth study, fielded among 247 Associated Credit Union of Texas customers living on low to moderate income found that 57% of respondents somewhat or strongly agreed that access to an artificial intelligence chatbot had a positive impact on their financial well-being.

In addition, combining emergency and education savings into unified tools or apps could support both short- and long-term goals—particularly for families with limited resources, who must ensure immediate financial stability while planning for the future, the report stated.

In a 2024 pilot research project done in partnership with the Pennsylvania Treasury Department and fintech company Flourish Fi, Commonwealth found linking 529 accounts with an emergency savings feature could help families living on low to moderate income save more effectively. Deposits into participants’ connected PA 529 accounts increased over a six-month pilot period, while contributions into a liquid savings account remained consistent. Nearly two-thirds (65%) of participants reported a “good” or “excellent” experience with the tool that integrated the accounts, and more than one-third (35%) said they planned to continue to use the tool after the pilot ended.

Regardless of what tools an employer deploys, the importance of its role as a communicator to employees of all income levels remains clear, according to Commonwealth.

“Employers are a trusted source of benefits information and can provide resources on available federal and state tax incentives for 529 savers, helping employers maximize the value of their employees’ education savings,” the report stated.