Kara McGuire has an interesting piece in the StarTribune about changes to a 529 matching program the State of Minnesota offers parents and students as an incentive to save for college. Previously, the state offered matches of 10-15% (depending on adjusted gross income) on money saved for college through the state’s 529 college savings program.
If a family making $40,000 was able to scrape together $1,000 for Jr’s college fund, the state would match that $1,000 with $150, which would then have nearly two decades to grow into something that may cover a couple credits in 2029. It turns out that offering people an incentive to save increases savings rates. Taking away that incentive – not surprisingly – has the opposite effect.
In order to avoid raising taxes on people making over $1 million per year, our legislators decided that this program needed to be cut.
To make matters worse, not only does cutting the program lessen savings by those who really need to save for college, it also increases costs for those still participating in the program. The issue here is that the companies that manage 529 funds offer management fee discounts based on the volume of money they manage for a state. And we – as a state – aren’t saving as much as some other states, so our savers are being charged fees 50% higher than some other states 0.45% rather than 0.30% annually on kids’ college savings.
Based on a 6% return, minus annual management fees, here is the difference I calculate between the previous 529 matching plan and the new 529 Protect the Wealthy Plan:
In the end, this doesn’t really matter because most of the jobs at the new Vikings stadium won’t require a college degree.