Children's Savings Momentum Hits New York
Children's Savings Account (CSA) programs have cropped up across the country. By the end of this year, nearly 313,000 children will have a CSA – a 39% increase from the end of 2015. In addition to CSA programs currently operated by nonprofits such as Children's Aid Society, the "I Have A Dream" Foundation and Credit Do, two recent developments have now brought significant momentum to CSAs in New York.
Next fall, as part of a three-year pilot initiative, all 3,500 incoming kindergarten students in one New York City school district will receive a $100 initial deposit in a CSA and additional incentives to save. In addition, New York Governor Andrew Cuomo signed a bill into law that will enable families to split their state tax refund and direct a portion of their refund into New York's 529 college savings program at tax time.
About the New York City CSA Pilot
In the New York City CSA pilot, for each of the next three years, all 3,500 incoming kindergarten students in one school district (still to be chosen) will automatically receive an initial $100 deposit into a 529 college savings account. Children can receive another $200 in their CSA over four years if their family meets certain benchmarks such as saving money on their own. The program is part of a three-year pilot designed by the city's Office of Financial Empowerment (OFE) to create a college-going culture for participants. If successful, plans call for expansion to all kindergarten students in the city. This pilot phase is being funded by a contribution from The Gray Foundation, which is headed by Jon Gray, the head of global real estate at a New York City investment firm, and his wife Mindy. The Grays donated $10 million to start the program.
The program will strive to be inclusive of low-income and marginalized populations. The initial $100 contributions will go into an omnibus 529 account, allowing undocumented immigrants who do not have Social Security numbers to participate. The CSA program also has automatic enrollment, ensuring that all families, especially those with limited English proficiency or less financial knowledge, can benefit from the savings.
Moreover, the program will encourage families to set up their own 529 accounts. Currently, 529 accounts are primarily used by the wealthy – nationwide, the median assets of $413,000 for families with the plans are nearly 25 times higher than the $15,400 in median assets for those without the plans – but New York City's Office of Financial Empowerment plans to use its Financial Empowerment Centers to advertise 529 accounts to all families and help them set up their own accounts.
About the New York State 529 Legislation
The new split refund legislation for 529s in New York State, which was signed by Governor Andrew Cuomo in late November, has the potential to connect more families with an easy option to save for college. Individuals and families will now have the ability to split their state tax refund and specify that a portion of their refund go directly into New York's 529 college savings program. Only 3% of U.S. families have 529 plans, and two-thirds of Americans say they don't know what 529 plans are. Advocates of the legislation and local community-based organizations plan to promote this new split refund option at Volunteer Income Tax Assistance (VITA) sites to help low- and moderate-income families take advantage of an easy way to save for their children's futures.
Taken together, both the New York City CSA pilot and the NY State split refund legislation for 529s represent significant steps toward making it easier for more New Yorkers to save for college. At Prosperity Now, we look forward to hearing more about the rollout of both initiatives in the coming months.