529 plans are a great way to save for college. And over the past decade, several states have launched programs that open and fund themselves automatically. 529 college savings plans for newborns.

Unfortunately, reports show that millions of families who have these accounts aren’t even aware of them, leaving money from their college savings unclaimed.

The benefits of these accounts cannot be overstated, even if you may only save a small amount of money each month or the money a child receives for vacations or their birthday over the years.

A recent report from the national non-profit Commonwealth “How Employers Can Help Workers Save for Their Children’s Education with 529 College Savings Plans”, showed that having a 529 plan for a child with even a small amount of savings increases their chances of going to college.

The report also shows that 529 plans are underutilized by low- and moderate-income families due to a lack of awareness. For example, 73% of families who participated in the Commonwealth’s national survey and who did not have a 529 plan had never heard of one.

Millions of children already have savings for their education

When it comes to college savings programs for newborns, California stands out with its California Children’s Investment and Development Savings Program (CalKIDS) program. Nearly 3.7 California students and 667,000 newborns in the state have money in the program, according to the nonpartisan, nonprofit news organization CalMatters.

How much do Californian children have? This partly depends on when they were born. This program was set up so that children born between July 1, 2022 and June 30, 2023 will receive $25 in their account, while those born after July 1, 2023 will receive (or will receive) a $100 deposit.

On top of that, all low-income first graders receive a one-time cash infusion of $500, and first graders in foster care or homeless receive an additional $500 (or an additional $1,000 if they meet both criteria). The State of California also provided a one-time deposit for all low-income students in grades 1-12 in its 2021-2022 budget. CalMatters points out that all money in the accounts is offered tax-free and that the funds are also invested in the student’s name.

This is great news for California students, but CalMatters reports that only 313,445 out of 4.3 million student accounts created were claimed by families. Additionally, only 6.3% of newborn accounts and 7.4% of student accounts had been claimed as of March 2024.

California is not the only state to offer this type of program, but it is one of the only programs that automatically saves for children without families initiating the process. Other states that automatically open 529 plans for children include New York and Pennsylvania. Pennsylvania is another state where students likely have money they didn’t know existed since its inception. Keystone Scholarship Program automatically deposits $100 into a college savings account for all children born to state residents (including adopted children) in 2019 or later.

Meanwhile, other states that have college savings programs for children (like Connecticut, Colorado, Kansas, North Dakota and others) offer matching funds when families put down first money in an account.

How to Tell if You Have Unclaimed College Savings Money

If you live in a state that automatically deposits money into a 529 savings account for children, financial advisor Kristen Beckstead of Premier Horizon Advisors says you should try to access information about your state’s program through the state treasurer’s website or the state 529 plan website. However, you will need to remember to look in the state in which a child was born or adopted, not the state in which he or she currently resides.

If you are not sure where to find this information online, you can also call your state treasurer or state 529 plan administrator.

Should You Use a 529 Savings Plan?

If your state has already opened a 529 savings plan for you, you should consider using it for college whether or not it has added money to the account. Beckstead says 529 plans are intended to ease the burden of paying for college with tax benefits and increased flexibility, including the ability to roll over unused 529 plan money into a Roth IRA for the beneficiary if certain conditions are met. filled. Additionally, money deposited into a 529 savings plan can grow tax-free until it is used for qualified higher education expenses, at which point the money can be used without any consequences tax.

Some states also offer tax credits or deductions for funds parents deposit into a 529 plan. In the state of Indiana, for example, residents receive a 20% tax credit (up to $1,500 per year) on up to $7,500 deposited into a 529 plan each year.

There are also states that top up the funds invested in a 529 plan. This means that if you deposit a certain amount, the state will put more money into the account.

One example is the state of Kansas, which offers matching funds through its LearningQuest Program. Specifically, the LearningQuest KIDS matching grant program matches up to $600 of funds invested in an eligible 529 plan in the 2024 state. However, participant income limits apply and at least $100 must be deposited to receive matching funds.

In Nevada, on the other hand, the Silver State Matching Grant matches up to $300 deposited into an eligible 529 plan for five years for a maximum of $1,500 per beneficiary.