North Dakota’s state-owned bank will be offering $300 incentives to some residents who start new college savings accounts, a perk that joins a list of newly approved tax breaks for college savers.
The state Industrial Commission, which is the board of directors for the Bank of North Dakota, approved the incentive Wednesday, about three months after the Legislature approved a bill to authorize the program.
Single North Dakotans who make less than $20,000 annually will qualify for state matching grants of up to $300 for money they deposit in a “529” savings plan, which is named for the section of the federal tax code that outlines its provisions.
Married couples who make less than $40,000 annually may also qualify for a grant, bank President Eric Hardmeyer said.
Gov. John Hoeven, Attorney General Wayne Stenehjem and Agriculture Commissioner Roger Johnson make up the Industrial Commission. The three men held a news conference Wednesday to publicize the initiative.
“It’s a great incentive. It is exactly what we ought to be doing … to encourage folks to begin saving for college educations,” Johnson said. “A lot of us wish we could do even more, and we likely will be doing even more.”
Deposits in 529 plans are made with after-tax dollars, but investment earnings and withdrawals from the plans are not taxed by either the state or federal government, as long as the money is spent on education. North Dakota’s plan accepts deposits as small as $25 to start an account.
State officials hope the grant program, along with new state income tax deductions that North Dakotans may take for contributions to college savings plans, will help spur interest in the state’s College SAVE program.
Until now, North Dakota’s plan did not offer any incentives for joining. This year, the Legislature authorized the grant program, and agreed to allow state income tax deductions of up to $10,000 for contributions to the college savings plan.
Unlike the grants, the tax deductions have no income limitations. Single North Dakotans may deduct up to $5,000 in contributions to a savings plan, while couples may subtract up to $10,000 from their state taxable income.
North Dakota’s college savings plan has been around since September 2001, but only 500 North Dakotans have opened accounts, which now hold about $8.2 million in assets. Last year, the plan’s investment manager, Morgan Stanley, was replaced by the Vanguard mutual fund company.
Thirty-one states offer tax incentives to residents who invest in their states’ plans, and those tend to spur more interest, said John Heywood, an executive in Vanguard’s retail investor group.
“Our experience among other college savings plans is that when a state takes those steps, the plans grow dramatically,” Heywood said.
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