Fourteen states make it easier to save for college by offering grants to residents who use their 529 plans. Some states provide matching grants for 529 plan contributions and others seed new 529 plan accounts with an initial contribution.
Why do states offer matching grants?
Studies show that children with even small amounts of college savings are more likely to enroll in and graduate from college. States provide incentives such as state income tax deductions and credits and grants programs to increase enrollment and participation in their 529 plans.
How do 529 plan grants work?
There are different rules for each state’s 529 plan grant program. Some states offer matching grants for 529 plan contributions. Matching grants work similar to an employer 401(k) match, where the state matches contributions, or a portion of contributions, up to a specified amount. Some grants can only be claimed once, while others may be available to residents each year until a cap is reached.
For example, Colorado’s CollegeInvest Matching Grant Program matches contributions to a CollegeInvest 529 plan up to $500 each year for up to five years. However, only lower to middle-income families who have an adjusted gross income below certain limits based on federal poverty guidelines may qualify for the grant. Limits are adjusted by household size.
Although a 529 plan beneficiary can be any age, many states’ 529 plan grant programs are limited to children or babies. States want to encourage residents to start saving in a 529 plan as early as possible to take advantage of the tax-free compounding. Investments in a 529 plan grow on a tax-deferred basis, and distributions are tax-free when the funds are used to pay for qualified college or K-12 expenses.
What if your state doesn’t offer a matching grant?
Your state may offer other incentives, such as a state income tax deduction or credit for 529 plan contributions or an employer 529 plan match, that can help boost your college savings. However, a 529 plan grant or state income tax benefit should not be the only consideration when selecting a 529 plan. High fees and poor investment performance can diminish savings and outweigh the benefits of other incentives. Families should also carefully review the 529 plan to make sure it offers suitable investment options that will help them meet their college savings goals.
Another option to boost 529 plan savings is to sign up for a free Upromise account and use the Upromise Mastercard. Upromise members can earn around 3% - 7% cash bask on purchases from participating online retailers and 2.5% cash back from dining at participating restaurants. All purchases made with the Upromise Mastercard earn an additional 1.25% cash back, with the option to "Round Up" purchases to the nearest dollar to earn even more rewards. Cash back and Round Up rewards earn an additional 15% bonus when an eligible 529 plan is linked to the account.
States that offer 529 plan grants