KIDS AND MONEY
By Steve Rosen
Contributing to a 529 college savings plan this holiday season has never been easier. Little assembly is required, and unlike toys, a 529 won’t break to pieces after a couple weeks.
Parents, grandparents, other family members and even your neighbor can contribute by using a variety of financial tools, including online gifting registries, crowdfunding apps, e-gift cards, and cash-back rewards programs.
At least 15 states even offer matching contributions and other financial incentives to encourage building up an account.
Money stashed in a 529 grows tax-free, provided withdrawals are used for a long list of qualified educational expenses. You can invest in any state’s plan, although many states provide a tax break for residents.
The holidays spur families to open and contribute to the state-sponsored 529 plans. A survey by the nonprofit College Savings Foundation (https://www.collegesavingsfoundation.org/), which promotes saving for higher education, found that 45% of the 1,000 parents polled said they planned to ask family members and friends to contribute to a child’s 529 while only 21% preferred toys or other material gifts.
As part of its survey, the foundation highlighted some of the innovations states have rolled out to make 529 gifting easier. For example:
*The T. Rowe Price College Savings Plan, in conjunction with the Alaska 529, allows account holders to us an online tuition gifting portal to ask friends and family for gifts by email, evites or other social media.
*California’s ScholarShare 529 plan participates in Ugift, which allows 529 account holders to create a gifting profile online. Account owners then share their Ugift code with family and friends by email or social media to encourage contributions. Beneficiaries can check on gift activity, including the name of the gift giver — if provided — and the amount of the gift.
*The Texas College Savings Plan and two companion 529 options offer downloadable gifting coupons.
*The Virginia 529 has a gift center for digital gift cards; cards can also be purchased at Walmart.com and participating Target and H.E.B. grocery locations.
*Colorado’s CollegeInvest matches contributions up to $500 a year for five years, providing the beneficiary is eight-years-old or younger when the account was opened. The grant is available only to lower to middle income families who have adjusted gross income below certain limits based on federal poverty guidelines.
Other states have no income restrictions, or offer matching money only when the account is open.
*Upromise offers cash-back rewards for online shopping, dining, groceries and more at participating businesses. Members also have the option to round up to the nearest dollar to earn extra rewards. Rewards are automatically deposited as contributions in a designated 529 once the amount reaches $50.
While these incentives may encourage more families to open or contribute to a 529 plan, it still pays to shop around. Focus your research on tax rules, contribution limits, qualifying education expenses, and of course, low fees and investment options.
Check out a 529′s investment performance at Savingforcollege.com. It analyzes more than 3,000 investment options for 529 accounts, ranking them from best to worst for one-year, three-year, five-year and ten-year investment performance.
The Morningstar investment research firm also ranks 529 programs. Three funds earned Morningstar’s gold standard in its most recent ranking: the Illinois Bright StartDirect-Sold plan; the Michigan Education savings plan; and Utah’s my529 plan. To find Morningstar’s top-rated plans, go to www.morningstar.com.
Questions, comments, column ideas? Reach Steve Rosen at email@example.com.