States have long offered tax breaks to parents who contribute to 529 college-savings plans. Now, they’re increasingly offering an even more straightforward incentive: cash. Fifteen states offer matching contributions, seed money, or other forms of financing to encourage residents to sign up.
Money stashed in a 529 account grows tax-free, and withdrawals are tax-free as long as the funds are used for qualified educational expenses. While you can invest in any state’s plan, many states provide a tax break for residents.
The new financial incentives could also make investing in your own state’s plan more appealing, although the most generous grants are income-based. Colorado’s CollegeInvest 529 plan will match contributions up to $500 a year for five years as long as the beneficiary is 8 years old or younger when parents sign up and the family’s adjusted gross income is 400% or less of the federal poverty level ($106,000 for a family of four). Other states have no income restrictions, but their offerings are smaller—$50 or $100 for parents of newborns.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Although these incentives may encourage more families to opt for a 529 plan, investors should still shop around, with a focus on plans with low fees and solid investment options, says Emory Zink, an associate director at research firm Morningstar. To find Morningstar’s top-rated plans, go to www.morningstar.com/articles/1006084/the-top-529-college-savings-plans-of-2020.
-
Tax Tips for Transferring Excess 529 Plan Funds to Roth IRAs: The Tax LetterThe Tax Letter 529 plans can help blunt the cost of paying for college. But if you want to use leftover funds there are some tax tips to bear in mind.
-
529s: No Longer the Ho-Hum Investing Device for CollegeChanges to the plans allow for the savings to be rolled into a Roth IRA, as long as certain rules are met, if a child decides not to pursue their education.
-
403(b) Contribution Limits for 2024retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
-
Roth IRA Contribution Limits for 2024Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
-
529 Plans: Give the Gift of Education (and Compounding)As the cost of college tuition skyrockets, parents and grandparents can take advantage of tax-efficient 529 plans and higher limits on gift and estate taxes.
-
Four Tips for Renting Out Your Home on Airbnbreal estate Here's what you should know before listing your home on Airbnb.
-
Five Ways to a Cheap Last-Minute VacationTravel Procrastinator? No matter. You can pull off a fun and memorable getaway on a moment's notice — without breaking the bank.
-
How Much Life Insurance Do You Need?insurance Instead of relying on rules of thumb, you’re better off taking a systematic approach to figuring your life-insurance needs.
