How to Gift 529 Contributions

Gifts don't have to be physical, like toys or video games — many parents would prefer gifts toward future expenses, like the looming costs of college. Often, that can be accomplished by gifting a contribution to a 529 college savings plan.

What is a 529 and why contribute to it?

A 529 plan is a tax-advantaged investment account used to save for qualified educational expenses. For those with disabilities, an ABLE account (also known as a 529A account) works similarly but covers qualified disability-related expenses instead of only qualified education-related expenses.

“A gift toward a 529 college savings account is an investment in a child’s future and as such, an extremely thoughtful gift to give as it will likely grow in value versus depreciate as many traditional gifts often do,” says author Patricia Roberts — who is also the chief operating officer at Gift of College Inc., an online gifting platform that helps facilitate 529 and ABLE account contributions.

Contributing to a 529 is a triple win, she says. The gift giver wins by finding a gift they feel good about and is easy to give, while the student’s parents or guardians win by receiving help with the arduous task of saving for education. And, the student wins by accumulating more educational savings and potentially less student loan debt down the road.

Additional benefits for the gift giver

As the gift giver, you may be eligible for additional benefits on top of finding a convenient and suitable gift.

“The first one is taxes; some states allow tax breaks for contributions. If you are not the parent, then you need to decide if you want the tax deduction or if you want the parents to take the tax deduction,” says Clayton Quamme, a certified financial planner and partner at AP Wealth Management in Augusta, Georgia.

If the gift giver doesn’t have any state income tax liability, giving cash to the student’s parents or guardians could make sense, Quamme says. This way, the parents or guardians could use the cash to contribute toward the student’s 529 while taking advantage of a reduction in their state income tax liability.

If opening a 529 account, the gift giver can also retain control of their monetary gift, if desired.

“One of the key features of the 529 plan is that the account owner retains control of the funds. You want to decide if you want to maintain control or if you want someone else, like the parents, to control the account,” he says.

The accounts have built-in flexibility for the 529 owner, who can name a different account beneficiary at any time. This means that if the current beneficiary or student doesn't use the funds, the owner can change the beneficiary, allowing someone else to use the funds.

Caveats to keep in mind

As with any financial product, there are essential details to think through.

Due to federal gift tax limits, one caveat to consider is the size of this gift along with any other gifts to the same recipient or their parents. But unless you're gifting more than the annual gift tax exclusion — $18,000 in 2024 — you don't need to worry. If you plan to exceed that amount, it's worth discussing your gift with a financial or tax advisor.

Also, you may not be the only one contributing to the student’s 529 or education savings.

“If you are a grandparent or family member considering a 529 plan contribution, we recommend you coordinate your contributions with other family members. This will help the family avoid under or over funding a child’s education,” he says.

Another consideration is the age of the student. You’ll get more bang for your buck if you contribute to a student’s 529 when they are young, giving the account more time to grow. Generally, the earlier you start saving, the less you’ll need to save to meet the same educational savings goal.

How to make a contribution

If contributing to 529s appeals to you, there are several ways to make it happen. Roberts from Gift of College Inc. says that you can:

• Open a new account for the future student. Anyone can open a new 529 account for any beneficiary and keep tabs on the investments within the account.

• Contribute to an existing account. If the student has an existing 529 account, you can send a check directly to the 529 plan administrator. In addition, some plans allow account owners to send an invitation to prompt an electronic contribution or distribute an ID number for gifting purposes.

• Purchase a 529 gift card. Some 529 plan administrators provide the option to purchase gift cards for student accounts under their management. Otherwise, you can buy gift cards through a third-party vendor, which can be deposited into any 529 plan.