Money for Kindergartners, Spendable on College

It’s Friday. We’ll look at college savings accounts that come with $100 for every kindergartner in public school in New York City — and why proponents say their value should be measured in more than dollars alone.

Every kindergartner in public school in New York City got something new this year: a college savings account with a balance of $100. By the time high-school graduation arrives in the 2030s, the average account is projected to be worth $3,000. That’s not enough to cover college tuition, but there’s research pointing to other important benefits. Even a small amount in a dedicated college account appears to enhance the chances that a student will stay in school and go to college.

I asked my colleague Tara Siegel Bernard, who as a personal finance reporter makes sense of everything from the federal debt ceiling to stimulus payments, to explain how these accounts will work.

How did you hear about the program?

I’ve been attending far more P.T.A. meetings than in prepandemic times because they’re now held over Zoom. During our latest meeting, our children’s elementary school principal mentioned that every kindergartner would be receiving a college savings account with $100. As a money reporter and the mom to a kindergartner, my ears perked up — and I started reporting to learn more.

If I have a child in school, how do I access the account?

Your kindergartner will be automatically enrolled, but you won’t be able to activate the account until January. Right now, the city is holding meetings to provide parents with more information about how the program works — and it will soon offer a chance to opt out.

But I can’t think of any reason anyone would want to. Free money is free money, even if it’s a modest amount to start.

And there’s more than the initial $100. How much more, and what do kids (or their parents) have to do to get it?

You can earn up to $200 in extra rewards.

So here’s how that will work: After the program goes live in January, parents will be able to take a series of steps, each of which will earn $25 along the way.

Once you go online to activate the account, that’s $25. Open your own college savings account and link it to the program’s scholarship account, and your student collects another $25. Deposit at least $5 into their own account? You get the idea.

After that, students will receive a dollar, up to $100, for every dollar their family saves in their own account, from first through fifth grade.

How much can I put in for my child? Is there a limit on how much of my own money I can deposit? When can I take money out?

I wrote an entire guide on college savings accounts. The TLDR version: If you open a college savings account, known as a 529 account, you can basically fund it to your heart’s content because there are generally no annual contribution limits on 529s, though aggregate limits vary by state.

In New York, for example, you can contribute up to $520,000 (!) per student. (That includes all New York State-sponsored accounts for the same beneficiary.)

But contributions are considered gifts. That means each parent can generally contribute up to $15,000 annually without any tax consequences. If you have deep, Daddy Warbucks pockets, you can contribute up to $75,000 in 2021 (twice that for married couples) if you use a strategy that treats it as a gift spread over five years.

You can withdraw the money, free of taxes, once the student has eligible expenses to spend it on. That includes college or vocational school tuition, books and many other related costs. Money from 529s can also be used to pay student loans, thanks to a newish law.

If I don’t deposit any of my own money, how much will be available when my child is old enough for college?

The nonprofit managing the program, NYC Kids RISE, projects that the average kindergartner’s account may be worth around $3,000 by the time he or she graduates from high school. And it assumes an annual return of about 5 percent.

The final amount available really depends on whether the program is as successful as everyone hopes it will be. Students can potentially raise a lot of money through community scholarship drives. A great example played out in the pilot school district in Astoria, Queens. The tenants’ association of a large public housing complex raised $1,000 each for more than a hundred elementary students living there. Some of those kids now have accounts worth more than $1,500.

By the way, the accounts were set up with $15 million from the city and $15 million from the Gray Foundation, a nonprofit started by Jon and Mindy Gray. (He is the president and chief operating officer of Blackstone, the giant private equity firm; she was an editor at Ziff Davis Publishing and a marketing executive at Edwin Schlossberg Inc.).

You wrote that this was the latest government endorsement of accounts that put kids on the path to education beyond high school. Where else has this been tried, and has it made a difference?

There have been more than 100 programs introduced across the country, stretching from San Francisco to Maine.

The fastest growing are those that automatically enroll the students — some when they’re newborns, others when they start school. Pennsylvania, for example, has already provided more than 300,000 babies with $100 accounts since 2019.

Most of the programs are too new to know how much of a difference they’ll ultimately make — the students haven’t yet reached high school. But there’s a growing body of research that has found the accounts can make a significant difference. One study found that even a modest but dedicated account can make a child three or four times more likely to attend college.

What happens if someone doesn’t go to college and doesn’t withdraw the money?

Let’s start with not going to college. If they don’t use the money in their scholarship account within 20 years of completing kindergarten — so around age 25 — it goes back to the program’s manager, which will use it to help other students.

The money can also be used for other eligible expenses, like trade or vocational schools. So you don’t necessarily have to go to a traditional four-year college to benefit.

Weather

Savor what a mostly sunny day in the high 70s has to offer today before showers and thunderstorms dampen the weekend. Tonight will bring a mostly cloudy sky with temps in the mid-60s.

alternate-side parking

In effect until Nov. 1 (All Saints Day).

The latest New York news

• A teenager who last month pleaded guilty to murder in the killing of Tessa Majors, an 18-year-old Barnard student, was sentenced to nine years to life in prison.

• Emily’s List, the fund-raising juggernaut dedicated to electing women who back abortion rights, backed Gov. Kathy Hochul’s campaign for governor.

• In November, fully vaccinated Canadians will again be allowed into the United States. Businesses along New York State’s northern border are celebrating the news.

• In the latest effort to stem the crisis at Rikers Island, women and transgender people held at the jail complex will be transferred to two state prisons.

• A 31-year-old police officer was taken into custody after admitting to fatally shooting a woman she encountered in her girlfriend’s apartment and shooting the girlfriend as well.

What we’re reading

• The Counter reports on the first agricultural workers to form part of a labor union in the state.

• The Tribeca Film Festival isn’t the only film festival to make a comeback this year. The NY Cat Film Festival and the NY Dog Film Festival is returning too.

• What we’re watching: Jan Ransom, an investigative reporter on Metro who covers criminal justice issues in New York, will discuss the crisis at Rikers Island on “The New York Times Close Up With Sam Roberts.” The show airs on Friday at 8 p.m., Saturday at 1:30 p.m. and Sunday at 12:30 p.m. [CUNY TV]

MetROPOLITAN diary

Serving

Dear Diary:

Standing tall as a soldier
She serves
The blintzes and stuffed cabbage
To us,
Our lips sealed
With a fear
Of treading on sacred ground.
“Na,” she whispers,
The wrinkles on her forehead
Moving like soft waves,
An ocean of old country
Coming back through
The swiftness of hands,
The scent of food
Becoming an incense-like aroma
From the inside of history
While the impatient honking
Of city traffic
Brings back the day.

— Kathryn Anne Sweeney-James

Illustrated by Agnes Lee. Read more Metropolitan Diary here.

Glad we could get together here. See you tomorrow. — J.B.

P.S. Here’s today’s Mini Crossword and Spelling Bee. You can find all our puzzles here.

Melissa Guerrero, Rick Martinez and Olivia Parker contributed to New York Today. You can reach the team at [email protected].

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