Some state plans give cash incentives in May to spur contributions.
If you’re considering opening a 529 college savings account for your child, this may be the time to do it: Some state plans offer cash incentives in May.
Many students are about to move from one phase of their education to the next, whether it’s completing kindergarten or finishing middle school and moving on to high school. “It’s a time when people are thinking about education,” said Mary Morris, the chief executive of Virginia’s Commonwealth Savers program and chair of the College Savings Plans Network, a group for 529 plan administrators.
That’s why 529 plans often promote perks now — to spur contributions. Offers range from modest matching gifts for opening or adding to an account to sweepstakes-style events dangling thousands of dollars in prizes.
Recent stock market gyrations may have given some parents pause about investing. But if saving starts when children are young, there’s time to ride out market swings. Richard Polimeni, managing director of education savings programs at Merrill and Bank of America, said he opened 529 accounts for his children soon after they were born. “There’s nothing that’s even close to a 529 if saving for college is your primary goal,” he said.
What is a 529 account?
Named for a section of the tax code, state-sponsored 529 accounts are for saving or investing money for college costs and other educational expenses. Money in the accounts grows tax free. In addition, some states offer tax breaks for 529 contributions, though there is no federal tax deduction.
Funds can be withdrawn tax free to pay for eligible spending on tuition, housing, food, books and supplies. (Withdrawals for nonqualifying costs are subject to income tax, plus a penalty.)