Many people have heard of the 529 college savings program, but, if you are like me, you may not know that Colorado offers some compelling 529 benefits. Whether you have already started saving in a 529 college plan or are new to program there is potential to boost your savings by $2600 for each child!
What is a 529? (or quick refresher for some folks)
Basically, 529s are tax advantaged accounts administered by the state that can be thought of like an Educational IRA. Here is the quick rundown with links to the Colorado specifics:
If you are a Colorado taxpayer, every dollar you contribute to a CollegeInvest 529 can be deducted from your Colorado state income tax return. When you file your taxes, you also have the option to direct deposit your refund to your CollegeInvest account. More information can be found here.
Better yet, anyone can contribute directly to your account – mom and dad, brother-in-law, or uncle – and they can take the income tax deduction as well (if they’re also a Colorado taxpayer).
Earnings grow tax free for both federal and state, so every dollar you save for college can work harder.
Withdrawals used for qualified education expenses aren’t taxed on your federal or state tax return.
What expenses can 529s be used for?
The 2017 tax overhaul didn’t just affect Federal income tax brackets. Now parents can withdraw up to $10,000 per year to pay for private primary and secondary education tuition.
Quick list of eligible expenses:
- Private primary and secondary education tuition $10,000 per year (possibly home school expenses too—check out https://hslda.org/content/ and search 529 for more info)
- Post-secondary educational expenses:
- Tuition
- Community colleges
- Public and private four-year colleges and universities
- Graduate and post-graduate programs
- Vocational and trade schools
- Required fees, books, and supplies
- Certain room and board expenses
- Computers (desktops, laptops, or tablets) and Peripheral Computer Equipment (such as mouse, keyboards, printers, scanners, and monitors)
- Software (educational based)
- Internet Access (excluding the bundled costs of phone cable and/or pay tv services)
- Tuition
I’m convinced—so how do I get the $2600?
$100 dollars for any child born or adopted in the State of Colorado beginning January 1, 2020.
Starting in 2020, the Colorado program is introducing FIRST STEP. This program is a one-time $100 contribution available from CollegeInvest (the organization that oversees the Colorado 529 program). Here are the requirements:
- The child must be a U.S citizen or resident alien with a social security number or federal tax identification number.
- A College invest 529 savings account naming the child as a beneficiary must be opened.
- The parent or legal guardian must apply for the program before the child’s 5th birthday.
If you and the beneficiary meet the requirements, CollegeInvest will notify you and deposit the $100 dollars into the account!
$2500 = $500 dollars matching funds grant each year up to 5 awards
The matching grant program is designed to help lower to middle-income Colorado families save money for educations. Here are the slightly lengthier requirements:
- You must be a Colorado resident.
- Your Beneficiary (child, grandchild, etc.) must be 8 years old or younger at the time of the initial application.
- You must be able to claim the Beneficiary as a dependent for federal income tax purposes.
- Your Family Adjusted Gross Income (AGI) from your tax return, as described in CollegeInvest Matching Grant Program TERMS & CONDITIONS, needs to be at or below the figures in the income eligibility chart below.
- You must carefully read and accept the Matching Grant Program TERMS & CONDITIONS.
- You must open and/or make a contribution(s) to your CollegeInvest College Savings Account during the Program Year for which you are applying.
Here is the income chart:
Next steps!
Now that you know the details, I urge you to go get your $2600 to jump start your child’s education savings. As far as the $500 matching grant portion goes, I understand that $500 isn’t exactly pocket chance; however, getting a $500 dollar match is an instant 100% return on your money! Even if you can’t afford the full $41.67 monthly contribution that it would take max out the $500 match, I would encourage you to at least find a way to start contributing. This all means that your child could have at least $5,100 towards educations costs, even more if you open an account that allows you to invest the money! Here are a couple hypothetical scenarios with a 7% return:
Invest the minimum to get the matching funds grant (includes FISRT STEP)
Invest the minimum to get the matching funds grant (includes FISRT STEP) and keep investing $500/yr
Awww—the power of compounding at work! Albert Einstein would be proud! Although his spreadsheet would have used a slightly better math equation, but you get the gist!
So, what if don’t qualify for the FIRST STEP or matching funds grant? Depending on your child’s age and foreseeable education requirements, at a minimum, a 4.XX% CO state tax savings is guaranteed. If your child ends up not using the funds, you can always change the beneficiary of a 529 to another family member or even yourself!
Here are the links to get all the info you need and get those 529s started:
FIRSTSTEP ($100): https://www.collegeinvest.org/first-step/
Matching Funds Grant ($500/Yr x 5): https://www.collegeinvest.org/matching-grant-program/
A free copy of my spreadsheet to play with the numbers (or make it much better): https://origincolo.com/wp-content/uploads/2020/01/529-analysis.xlsx
OriginColo 