States Offer Cash Bonuses for Opening 529 College Savings Accounts This May

If you're thinking about starting a 529 college savings account for your child, May is an opportune moment, as certain state programs are offering cash bonuses to boost contributions.

Many students are transitioning between educational stages—whether completing kindergarten or advancing from middle to high school—which often prompts families to focus on education savings. Mary Morris, CEO of Virginia’s Commonwealth Savers program and chair of the College Savings Plans Network, notes this period typically inspires increased attention to education funding.

To encourage contributions, 529 plans frequently promote incentives during this time. These rewards vary from small matching deposits for opening or adding funds to accounts, to sweepstakes offering substantial cash prizes.

Recent market volatility may cause some parents to hesitate about investing, but beginning to save early provides ample time to weather market fluctuations. Richard Polimeni, managing director of education savings programs at Merrill and Bank of America, shared that he established 529 accounts for his children shortly after their births. He emphasized, “There’s no better option than a 529 when saving specifically for college expenses.”

Understanding 529 College Savings Accounts

Named after a section of the tax code, 529 accounts are state-sponsored savings plans designed to help families accumulate funds for college and other qualified educational costs. The investments in these accounts grow tax-free, and many states provide additional tax benefits for contributions, although there is no federal tax deduction.

Withdrawals from 529 accounts are tax-exempt when used for eligible expenses such as tuition, housing, meals, books, and supplies. However, distributions for nonqualified expenses are subject to income tax and an additional penalty.