You know about the possibility of your 401(k) contributions being matched (typically by an employer), but did you know that your 529 savings plan contributions could be matched as well? Last year, Dun & Bradstreet Credibility Corp., which provides credit-building services to businesses, announced plans to match, up to a certain amount, its employees’ 529 plan contributions. While you might not be one of the lucky employees who can take advantage of this deal, you may be able to get a similar perk through programs right in your own backyard. Here’s how you can get a slice of the 529 plan match pie.
Financial experts say that by saving in a 529 plan you enjoy not only tax-deferred growth of your money and federal income tax-free distributions, but you may also be eligible to receive free money in the form of a match to your 529 plan contribution. Mark Kantrowitz, publisher of FinAid.org and Fastweb.com, says matching grants, or funds, have been around for about a decade and are usually disbursed by state-sponsored 529 plans.
Right now, 13 states offer such matching grants (see sidebar), providing, on average, about $500 in matching grants per year. Those applying for matching funds from a particular state must reside in that state and meet all income guidelines. Missouri offers a dollar-for-dollar match, up to $500 per year for residents who earn adjusted gross incomes of $74,999 or less; the most a beneficiary can receive in matching funds is $2,500. Some states offer more to low-income savers: In Arkansas, those who earn less than $30,000 can receive $2 for every $1 saved, up to $500. Other states, such as Louisiana, will match up to 14% of annual deposits, depending on the account owner’s income.
Missourians Sean and Vera Hadley, 36 and 33, plan to apply for their state’s 529 matching grant program when they open an account for their younger son, Cameron, 3, later this year.
Other college savings options include programs such as Upromise
, a national college savings rewards program that offers up to 25% back on qualified purchases. The Hadleys currently participate in this program. Participation is free, and as you spend, you can have rewards rolled over from your Upromise account to your 529 plan. Since joining, Sean estimates that $600 has been rolled over to his 529 plan (not a state-sponsored 529) that he opened for the couple’s older son, Christian, 8, in 2004.“I think it’s foolish not to join a program that gives you money for your kid’s education,†says Sean. “And it’s better to set money aside now when your children are young.â€
Sean says the 529 account had reached $1,200 with just $25 in monthly contributions that weren’t always made consistently in addition to the rolled-over Upromise rewards. He withdrew about $600 from the account in 2010, triggering a 10% penalty, and is now working on replenishing it.
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Experts say that establishing a
savings routine is more important than the amount you set aside. “You don’t have to save for all four years of college to benefit from a 529 plan,†says Michael Fitzgerald, Iowa state treasurer and chairman of the College Savings Plans Network. “Start with a year, or even a semester.†Empirical evidence shows that children who have a 529 plan are more likely to enroll in college, Kantrowitz adds, not just because the money is available, but also because it sets up an expectation for them to attend.Getting started with a 529
Those looking to open a 529 plan should always start by researching what their home state has to offer, says Fitzgerald. Most states offer plans that include tax incentives such as state income tax deductions in addition to the standard federal tax-free distribution. In Colorado, all annual contributions are deductible from state taxable income unless non-qualified withdrawals are made. Some states don’t require a minimum contribution; others require as much as $1,000. Also, consider fees when selecting a plan. Kantrowitz says that, ideally, fees should be less than 1%.
Joe Hurley, a 529 savings plan expert, suggests selecting an age-based option which invests more aggressively when the child is young but more conservatively as he or she gets closer to college age. He says that while there’s never a guarantee that money won’t be lost, this option can help protect money that is earned over the years. Kantrowitz says this option usually starts off with a portfolio of 80% stock and ends with about 20%.
States that Offer a 529 Plan Match
Every state (except Wyoming) along with the District of Columbia operates its own 529 plan; however, not all of them offer matching grants. Here is a complete list of those that do:
Arkansas (www.arkansas529.org)
Colorado (www.collegeinvest.org)
Florida (www.myfloridaprepaid.com)
Kansas (www.learningquest.com)
Louisiana (www.startsaving.la.gov)
Maine (www.nextgenplan.com)
Missouri (missourimost.org)
Nevada (uii.s.upromise.com)
North Dakota (collegesave4u.s.upromise.com)
Rhode Island (www.riheaa.org/cbf)
Texas (www.lonestar529.com)
Utah (www.uesp.org)
West Virginia (www.smart529.com)