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

Planning to Sell Your Home in Retirement? Downsize Costs Along With Space
Budgeting

Planning to Sell Your Home in Retirement? Downsize Costs Along With Space

In this hot real estate market, consider the costs of buying and selling a house along with the expenses associated with your new digs.
November 13, 2020
What Biden Will Do: 24 Policy Plays to Expect From the Next Administration
Politics

What Biden Will Do: 24 Policy Plays to Expect From the Next Administration

The Kiplinger Letter forecasts President-Elect Joe Biden’s biggest priorities -- and the likelihood of progress on them.
November 19, 2020
The 13 Best Healthcare Stocks to Buy for 2021
Kiplinger's Investing Outlook

The 13 Best Healthcare Stocks to Buy for 2021

Most of the best healthcare stocks for 2021 will have some sort of ties to COVID, whether it's producing a vaccine or cure, or benefiting from the vir…
November 20, 2020

Recommended

Some College Students Can Still Get a Stimulus Check
Coronavirus and Your Money

Some College Students Can Still Get a Stimulus Check

Since the deadline is right around the corner, quick action is needed for college students who are eligible for a stimulus check.
November 17, 2020
What the New President Means for Your Money
Politics

What the New President Means for Your Money

President-Elect Biden wants more consumer protections and perks for the middle class and seniors.
November 17, 2020
20 Things You Need to Know About Getting Into a Military Service Academy
Paying for College

20 Things You Need to Know About Getting Into a Military Service Academy

The U.S. Military Academy at West Point, Naval Academy, Air Force Academy, Coast Guard Academy and Merchant Marine Academy offer a tuition-free educat…
November 11, 2020
Divorce: Who Pays for Education and How to Afford It
Divorce

Divorce: Who Pays for Education and How to Afford It

You think Junior should go to public school, and your ex wants him to go to a pricey private school instead. Who pays? How do you decide? Buckle up, b…
November 6, 2020