College Savings Incentive Programs

by Michelle Smoley, former Assistant Vice President at Chase Student Loans Even though your grandmother probably told you there is no such thing as a free lunch, everyone loves getting something for nothing. We are offered free things—typically of little to no value—all of the time, usually with a catch. For many families, college is far from free. But, what if you were offered a freebie that would help pay for your child to go to college? Several states provide college savings programs for families with qualifying incomes. The goal is simple: to get families saving for college! Some agreements have matching grants for 529 plan contributions while other states offer seed money for an initial contribution. These incentives are offered to families to start their college savings plan and for good reason. Studies show that children who have even a small amount of college savings are more likely to enroll in and graduate from college. Here are answers to some of the most common questions about these incentive programs. Which states offer 529 grant programs? There are different rules for each state’s 529 plan grant program. Similar to other money-matching programs like 401K contributions, the state will match the contribution or a portion of it, up to a specified amount. For example, the Silver State Matching Grant Program offered by the state of Nevada matches contributions up to $300 per year with a lifetime maximum of $1,500 over five years for the same beneficiary. Tennessee’s Investments Preparing Scholarships Program (TIPS) provides $100 for every $25 contributed with a maximum $500 per year for up to three years. North Dakota, Kansas, and Maryland offer specific monetary matching dollars. Louisiana’s Student and Tuition Assistance and Revenue Trust (START) Program matches up to 14% of contributions. New 529 plan accounts in Maine receive both an initial matching grant and then a 30% match on contributions up to $300 annually. What about seed contributions? Seed contribution amounts are another incentive for families to take that first step towards saving for college and open a 529 plan. Most 529 plans can be opened with as little as $25; states like Oregon, Rhode Island, Massachusetts and West Virginia offer one-time seed incentives ranging from $25-$100. Is my state next? Given the success of these programs, other states are following suit. For example, Pennsylvania’s Keystone Scholar Program started offering $100 seed money for all children born in that state and Nebraska started enrolling all newborns in its 529 plan with matching fund contributions on the horizon. Illinois started offering newborns an initial $50 contribution in their state 529 plan; California has allocated $25 million to their ScholarShare Program that matches up to $200 in contributions dollar for dollar, plus an additional $25 when families choose to enroll in an automatic contribution plan. Are there any restrictions? Families need to read the fine print of their plan agreements. Many of the grant programs are limited to children who are residents in those states. Also, some states have income restrictions on grant fund recipients; limits may also be adjusted by household size. For families who do not live in a state offering matching grants or seed contributions there still may be incentives for you to open a 529 plan. Some states offer tax breaks on contributions for residents who open accounts. Loyalty programs, such as Upromise allow families to earn cash back on purchases. These earnings are then deposited directly into a linked 529 plan. If you are a family who wants to start saving for college and you reside in a state that offers matching 529 plan grant awards or initial seed money, now may be the time to think about starting to save for college in a 529 Plan. Who wouldn’t want to contribute $25 and receive an extra $100 to put in that college savings plan?