Can Investing $100 in Kindergarten Pay for College?

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To help families pay for the path to education beyond high school, the NYC Kids Rise program recently started providing ​$100​ scholarships to any child entering kindergarten at a public school in New York City. This money goes into a 529 college savings plan where it can grow and remain until the children need the money for their higher education. While the small initial contribution alone likely won't cover all college costs, parents can contribute to boost the benefits. Here's what you should know about the program and the use of 529 plans in general.


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Understanding NYC's College Savings Plan

The NYC Kids Rise program for college savings started back in 2017 but has just now expanded to cover all NYC school districts. The program's basis is that having any amount saved for college motivates students to be more likely to pursue higher education. To ensure simplicity, this is an automatic program where parents need to take no action or submit any financial information. Everybody, regardless of income, qualifies and is enrolled unless they ask not to be.


Along with receiving the ​$100​ seed money in an account called a 529 Direct Plan, families get access to tools that help them contribute, and children learn about finances at public school. Families can receive ​$200​ in matched savings money, and the program allows third parties, such as businesses, to give children money for college savings.

NYC's plan allows parents to contribute a yearly maximum of ​$75,000​ (single taxpayers) or ​$150,000​ (married filing jointly taxpayers). They can deduct a maximum of ​$5,000​ (single) or ​$10,000​ (married filing jointly) of these contributions on their yearly tax return. These child development accounts come with other financial benefits since earnings and withdrawals are usually tax-free when the money pays for eligible expenses (such as higher education tuition, fees and equipment). However, small fees do apply for managing the account.


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Working With a 529 Plan

Even if you're not in NYC, you can still sign up for child savings account programs. 529 plan options can include those that either let you start saving for college or let you prepay for tuition, and availability varies by state. You can often set up a 529 plan through a brokerage or state-specific governmental websites. The money usually is invested in securities like exchange-traded funds and mutual funds, so your returns can vary as the market fluctuates.


To allow for the most contributions and growth potential, consider starting investing when your child is just a newborn or otherwise as early as possible. While even a one-time investment such as ​$100​ can ultimately help, you'll need to estimate your child's higher education costs and potential financial aid to determine the right savings goal. You might find that a potential monthly contribution is less than you'd think. For example, according to NY Saves, putting aside just ​$100​ a month could lead to around ​$35,000​, due to compounding interest, by the time a kid turns 18.


Check your state's requirements since while you'll usually have an aggregate limit for 529 plans. The annual maximum contributions vary by plan but are usually high. Also, compare the different portfolio options available when looking at specific plans so you can maximize your earnings potential and take on an acceptable level of risk. Once you're signed up, you might set up recurring deposits from your paychecks or bank account to make it easier to make regular contributions.

Consider also​: Are Contributions to a 529 Plan Tax Deductible?


Using the College Investment Money

Generally, 529 plans allow for some flexibility when it's time to use the money saved. You can use the funds toward your child's college expenses or qualified career training. Your children can usually use the money along with financial aid, though benefits like grants can be reduced. You can usually use as much as ​$10,000​ annually toward K-12 schooling costs or a maximum of ​$10,000​ over a lifetime for paying student loans associated with the beneficiary or a sibling.


Alternatively, the money can be transferred to pay for your own or your grandchildren's qualified education expenses. If you decide to withdraw funds for other reasons, you can do so, but know that taxes and penalties apply.

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