How family and friends can help fund your child’s 529 college savings plan

Saving for college and other higher education expenses is an important financial goal for many families. With the cost of tuition steadily rising, parents are seeking ways to ensure that their children can afford a quality education without incurring massive student loan debt. A popular and effective vehicle for this is a 529 plan, a tax-advantaged education savings account specifically designed to help families set aside money for future educational expenses.

While parents are often the primary contributors to 529 plan accounts, family members and friends can also play a key role in helping to fund a child’s college education.

Contributing to a 529 plan account can be a meaningful and impactful gift. Whether your child chooses college, a technical or trade school, or a certified apprenticeship program, there are several ways in which friends and family can help:

1. Direct contributions to an existing 529 plan account

Many states have provisions that allow anyone to contribute directly to a 529 plan account, even if they do not own the account. Platforms like Ugift^®1 (see grey box below) make it simple for family and friends to contribute. These tools allow loved ones to make online contributions to a child’s account, often by just entering a unique code or account number and making a deposit.

Contributions can be made as one-time gifts, which is especially popular during holidays, birthdays, or other milestones. For instance, instead of giving toys or clothes that may quickly be outgrown, family members can give a gift that appreciates over time and provides a lasting impact on the child’s future.

Contributors may also be eligible for a state income tax deduction depending on their state of residence. Over 30 states offer a state income tax deduction or tax credit for 529 plan account contributions. If you live in Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio, or Pennsylvania, contributions to any 529 plan accounts are eligible for the state’s income tax deduction, not only in-state plans.²

2. Set up recurring contributions

Some platforms (including Ugift^®) allow for recurring contributions, so family and friends can easily set up monthly or yearly gifts to a child’s 529 plan account. This option is perfect for grandparents or godparents who want to contribute regularly to the child’s future but might not want to manage the logistics of an account themselves.

3. Open a separate 529 plan account

In some cases, family members—particularly grandparents—may want to open a separate 529 plan account in their own names. This can offer them more control over how and when the funds are used, and it allows the account owner to remain in charge of the distributions. This approach also has specific implications for financial aid and tax considerations.

An important factor in determining how 529 plan contributions affect a child’s future is who owns the account. Ownership has implications for financial aid eligibility, tax benefits, and control over the account. Here’s a closer look at the differences between parent‑owned, student-owned, and grandparent-owned 529 plan accounts:

Parent-owned 529 plan accounts

The most common account owners of a 529 plan are parents. While parents may open the account, family members and friends can contribute as well. The parent will still be in control of the account and can determine how all of the funds are invested and when distributions are made.

Student-owned 529 plan accounts

In some instances, a student may own the 529 plan account, though this is less common. In this case, the student is both the beneficiary and the account owner. Students may choose to open their own account to help support their continuing education.

Grandparent-owned 529 plan accounts

Grandparents can also open and contribute to a 529 plan account for their grandchildren. They often have the financial means and the desire to help with college savings, and a 529 plan provides a structured, tax-advantaged way to do so.

When contributing to a child’s future education savings via a 529 plan account, there are several factors to keep in mind:

1. Gift tax implications: Contributions to a 529 plan account are considered gifts under federal tax law. In 2024, individuals can gift up to $18,000 per beneficiary annually without triggering the federal gift tax (provided no other gifts are made to that individual during the five years). There’s also a provision that allows individuals to make five years’ worth of contributions in a single year (up to $90,000) without incurring gift tax, which can be a powerful strategy for grandparents.

2. Coordination between accounts: It’s important to communicate with the account owner before making contributions to ensure that everyone is on the same page regarding the child’s college savings goals. If there are multiple 529 plan accounts (e.g., one owned by the parents and another by the grandparents), coordination is essential to avoid overfunding or mismanaging distributions.

3. Financial aid considerations: Ownership of the account plays a significant role in determining financial aid eligibility. With the 2024 FAFSA rule changes, grandparent-owned accounts have become even more attractive, but families should still strategize about the best way to structure contributions and withdrawals.

4. Tax considerations: Gifters can potentially take tax deductions on any contributions (up to a limit) to others’ 529 plan accounts, depending on the state they live in.

Contributing to a child’s 529 plan account is a generous and impactful way for friends and family to support future educational goals. Whether through direct contributions, opening a separate account, or making regular gifts, loved ones can play a critical role in helping to reduce the financial burden of higher education. Understanding the differences between parent-owned, student‑owned, and grandparent-owned 529 plan accounts is essential to maximizing the financial and tax benefits while minimizing any potential impact on financial aid.

With thoughtful planning and collaboration, family and friends can come together to give a child the gift of a bright educational future.

Be sure to review any 529 college savings plan offered by your home state or your beneficiary’s home state, as there may be state tax or other state benefits, such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s plan. Please note that the plan’s disclosure document includes investment objectives, risks, fees, charges and expenses, and other information that you should read and consider carefully before investing.