California residents who open a 529 college savings plan and commit to monthly auto-deposits of $50 for six months can receive a $50 cash bonus, as long as the account is opened by May 31.
This incentive stands out compared to other states. Utah offers a $40 bonus, while Virginia provides $25. Some states use a lottery system to distribute larger rewards. In Pennsylvania, six participants who deposit at least $10 into a 529 account in May will each receive $5,529. West Virginia plans to award $15,000 to one person who opens a new account.
Mary Morris, chair of the College Savings Plans Network, explained that May is a strategic time for these incentives. โMay is a period when families think more about education due to milestones like kindergarten or middle school graduations,โ she said. โMany states take this opportunity to encourage account openings through bonus offers.โ
The 529 plan, named after a section of the federal tax code, allows families to save for a range of educational expenses. Withdrawals are tax-free when used for college tuition, room and board, meal plans, textbooks, and other qualified education costs. While contributions are not tax-deductible, earnings on investments grow tax-free.
Recent legal updates have expanded the flexibility of the 529 plan. Funds can now be used for K-12 tuition and student loan repayment. Up to $35,000 can also be rolled over into a Roth IRA, offering an alternative use of the funds if a child does not attend college. However, non-educational withdrawals are subject to income tax and a 10% penalty.
As of the end of 2024, there were approximately 17 million 529 accounts nationwide, with total holdings of $525 billion. The average account balance was about $31,000.
Morris emphasized that even a modest bonus can help families begin saving. Experts recommend starting regular contributions to a 529 account early in a childโs life for the best long-term benefits.
BY WONHEE CHO [cho.wonhee@koreadaily.com]
