Colorado’s First Step Program for College Savings

I’ve written about 529 plans before and how I believe, for most folks, they are the best way to save for a child’s possible future college education. This is especially true if your state plan offers some kinds of tax incentives. For example, in Colorado your contributions are deductible from your state taxes each year, so that’s like getting a fairly immediate 4.40% investment return just for contributing (on top of whatever tax free earnings you get over time).

But Colorado doesn’t stop there, it also offers (since 2020) a great program called the First Step Program that will help you jump start your savings for college by – literally – giving you money. First, any beneficiary born or adopted in the state of Colorado on or after January 1, 2020, will receive a free $100 gift contribution to their CollegeInvest College Savings Account to help them get started on their way to saving for their higher education, as long as you open the account and apply for the gift before the child’s fifth birthday.

That’s great but, believe it or not, that’s not the best news. Once you receive the $100 from First Step, you’ll also get the added benefit of the Matching Grant Program, which matches your future contributions dollar-for-dollar, up to $500 per year for the next five years. In other words, if you can afford to contribute at least $500 per year for the first five years of your child’s life, you will get $2,500 in matching contributions, plus the $100 gift (so $2,600 total), plus a tax savings on your Colorado taxes of $110 for making that $2,500 in contributions (Updated with new amounts.)

Even if you wait until the very last minute each year to contribute (December 31st), after five years of contributions you will have a total of $5,763 in your 529 plan (assuming a 6% return each year). Even if you never contributed another dollar, that would grow to almost $13,000 by the time your child is 18 (again, assuming a 6% annual return). Not bad considering you only contributed $2,500 (actually, $2390 after you subtract the $110 in tax savings).

If you live in Colorado and have a new child (or even not so new, as long as they under five years old), I would highly recommend creating a College Invest account, sign up for the First Step program, and start making contributions.

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