You know about the possibility of your 401(k) contributions being matched (typically by an employer), but did you know that your 529 savings plan contributions could be matched as well? Last year, Dun & Bradstreet Credibility Corp., which provides credit-building services to businesses, announced plans to match, up to a certain amount, its employees’ 529 plan contributions. While you might not be one of the lucky employees who can take advantage of this deal, you may be able to get a similar perk through programs right in your own backyard. Here’s how you can get a slice of the 529 plan match pie.
Financial experts say that by saving in a 529 plan you enjoy not only tax-deferred growth of your money and federal income tax-free distributions, but you may also be eligible to receive free money in the form of a match to your 529 plan contribution. Mark Kantrowitz, publisher of FinAid.org and Fastweb.com, says matching grants, or funds, have been around for about a decade and are usually disbursed by state-sponsored 529 plans.
Right now, 13 states offer such matching grants (see sidebar), providing, on average, about $500 in matching grants per year. Those applying for matching funds from a particular state must reside in that state and meet all income guidelines. Missouri offers a dollar-for-dollar match, up to $500 per year for residents who earn adjusted gross incomes of $74,999 or less; the most a beneficiary can receive in matching funds is $2,500. Some states offer more to low-income savers: In Arkansas, those who earn less than $30,000 can receive $2 for every $1 saved, up to $500. Other states, such as Louisiana, will match up to 14% of annual deposits, depending on the account owner’s income.
Missourians Sean and Vera Hadley, 36 and 33, plan to apply for their state’s 529 matching grant program when they open an account for their younger son, Cameron, 3, later this year.
Other college savings options include programs such as Upromise, a national college savings rewards program that offers up to 25% back on qualified purchases. The Hadleys currently participate in this program. Participation is free, and as you spend, you can have rewards rolled over from your Upromise account to your 529 plan. Since joining, Sean estimates that $600 has been rolled over to his 529 plan (not a state-sponsored 529) that he opened for the couple’s older son, Christian, 8, in 2004.
“I think it’s foolish not to join a program that gives you money for your kid’s education,†says Sean. “And it’s better to set money aside now when your children are young.â€
Sean says the 529 account had reached $1,200 with just $25 in monthly contributions that weren’t always made consistently in addition to the rolled-over Upromise rewards. He withdrew about $600 from the account in 2010, triggering a 10% penalty, and is now working on replenishing it.
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