529 Plans

College-Savings Plans Make It Easy to Give a Child the Gift of Tuition

Relatives can contribute to a child's 529 college-savings plan, and in many cases they can get a tax deduction on their gift.

Question: A few of my family members would like to contribute money to my son's 529 college-savings account as a gift. How do they do this, and will they be able to get a state income tax deduction?

Answer: Many 529 administrators are making it easier for people to contribute to 529s as gifts. T. Rowe Price, for example, recently introduced a GoTuition gifting portal for its 529 accounts. An account holder can create a profile page online, then share a custom URL for family and friends to make a direct deposit from their bank into the 529 account. Several plans (such as the Colorado CollegeInvest 529, the DC College Savings Plan, College Savings Iowa and Missouri's 529 College Savings Plan) participate in the Ugift program. The program lets you sign up for a code that you can share with family and friends to enable them to contribute to the account online; they don't need to be related to the beneficiary. Go to your plan's website to find out whether it participates in the Ugift program or offers other steps that relatives and friends can take to contribute.

Tax rules vary by state. About two-thirds of states offer an income tax deduction for 529-plan contributions. You generally need to contribute to your own state's plan to get a state income tax break. But a few states, such as Arizona, Kansas, Missouri, Montana and Pennsylvania, let you deduct contributions to any state's 529 plan. Most states let you deduct a contribution you make to someone else's account, but a few, such as New York, let only the account owners deduct contributions. You can find out more about your state's rules at SavingForCollege.com.

If you live in a state that offers a tax break only to account owners, see if you can qualify for the deduction by opening a separate 529 account. You may need to open the account in your own state to qualify for the tax break, unless you live in one of the states that lets you deduct contributions to any state's plan. There's no limit to the number of accounts that can name a child as a beneficiary. If the child doesn't go to college or doesn't need the money, you can switch the beneficiary to another eligible relative of the child, such as a parent, sibling or cousin. See the “Qualified Tuition Program” section of IRS Publication 970, Tax Benefits for Education, for more information about 529s, as well as a full list of eligible relatives of the beneficiary and other rules.

Most Popular

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021

Recommended

Free (or Cheap) College for Retirees in All 50 States
retirement

Free (or Cheap) College for Retirees in All 50 States

Whether it's to complete a degree, gain new knowledge or just for fun, retirees can collect their books and get on (back) to school in a most inexpens…
August 25, 2021
11 Things You Don’t Need for College
college

11 Things You Don’t Need for College

College sticker shock when you first see the bill for tuition, room and board (and all those nebulous activity fees) is bad enough.
August 13, 2021
School’s Out for Summer … But Tuition Is Back in the Fall
Paying for College

School’s Out for Summer … But Tuition Is Back in the Fall

Giving the gift of education never goes out of style. Here are some different options for helping out the young person in your life.
July 31, 2021
States Boost 529 Plan Incentives
529 Plans

States Boost 529 Plan Incentives

Many states provide a tax break for residents, and now they're offering matching contributions and other perks.
July 9, 2021