R.I. showering babies with cash for their 529s

The Rhode Island Higher Education Assistance Authority is giving families an incentive to start saving for their children's college education. The state will deposit $100 in a Section 529 account for any baby born after July 1, said Patricia Roberts, senior 529 product manager with AllianceBernstein, the manager of the 529 program. “We are helping the state with administering these starter accounts,” Ms. Roberts said. AllianceBernstein last week announced that it had renewed its 529 contract with Rhode Island for another five years. Alliance has been managing the plans for the past 10 years, making it one of the first firms to enter the 529 market. The in-state CollegeBoundfund has $248 million in assets, and the national adviser-sold plan has $7.1 billion. A number of states, such as Iowa and Oklahoma, have run similar incentive programs, but most states offer tax benefits instead, said Joseph Hurley, chief executive and founder of Savingforcollege.com. “It remains to be seen which way is more effective in getting people to save for college,” Mr. Hurley said. The risk with doing starter accounts is that AllianceBernstein could end up with a lot of small account balances, which are expensive to administer, he said. “This will get more costly for AllianceBernstein,” he said.