A gift that grows: Why grandparents may want to consider contributing to a CollegeBound 529 account
Key takeaways
Grandparents looking for a meaningful gift may want to consider contributing to a CollegeBound 529 account, which can help support a child’s long-term educational goals.
Updated FAFSA® rules have made grandparent contributions more straightforward, removing a long-standing concern about financial aid eligibility.
A 529 plan offers tax advantages, investment options, and the ability for grandparents to maintain control over the account.
A modern approach to giving
Grandparents love to make children smile by showering them with toys, games, and treats that provide instant gratification. But most of these items are quickly outgrown or simply add to the clutter in a home that already has more than enough “stuff.” For grandparents who want to give something with lasting value, contributing to a CollegeBound 529 account can be a perfect alternative.
Today’s higher education costs underscore the value of this type of support. According to CollegeBoard, for the 2025–2026 academic year, average published tuition and fees reached $45,000 at private nonprofit four-year institutions, $11,950 for in-state students at public four-year colleges, and $31,880 for out-of-state students at public four-year institutions1.
And that covers only the sticker price for tuition and fees. Once room, board, books, and other living expenses are included, total cost of attendance might exceed $60,000–$65,000 per year at private colleges. With tuition and costs rising over time, a newborn today could face annual private-college costs well in excess of $80,000–$90,000 (or more, depending on room/board inflation) by the time they enroll.
Why 529 plans may appeal to grandparents
For grandparents who want to support a child’s future while keeping flexibility and control, 529 plans offer several key benefits:
Control stays with the account owner
Grandparents who open and own a 529 account decide how and when the money is used. They retain control, even as the beneficiary reaches adulthood, and can direct distributions toward qualified education expenses when the time comes.
Tax advantages can help contributions go further
Earnings in a 529 plan grow tax-deferred, and withdrawals2 are tax-free when used for qualified education expenses. Some states also offer additional tax benefits for contributions.3
A potential estate-planning tool
For grandparents thinking about long-term planning, contributions can fit naturally into annual gift strategies. In addition, the five-year gifting rule allows for larger, one-time contributions without incurring gift tax.
Flexibility if a child’s plans shift
If the original beneficiary doesn’t need the funds, the account can typically be transferred to another eligible family member. Legislation also now allows some unused funds to be rolled into a Roth IRA for the beneficiary, subject to specific requirements and limits. These features help minimize common concerns about “over-saving.”
Updated FAFSA® rules open new doors
In the past, some grandparents hesitated to contribute due to worries that 529 withdrawals from a grandparent-owned account could affect a student’s eligibility for need-based aid. That concern has now largely been removed.
Under updated FAFSA rules, students no longer report cash support or distributions from 529 accounts owned by grandparents. This simplifies planning and makes it easier for grandparents to contribute confidently without unintended consequences for the student’s aid application.
Bridging generations through financial wellness
By contributing to a 529 account, grandparents can help reduce the need for future borrowing, which can ease the financial pressure on both parents and students.
Lower student debt can give young adults more flexibility as they enter adulthood, potentially helping with milestones such as:
- Saving for a first home
- Building an emergency fund
- Investing early for retirement
- Pursuing career paths without the burden of large loan payments
Grandparent contributions can also help parents stay on track with their own financial goals, including retirement savings, rather than redirecting those funds toward education expenses.
Grandparents can contribute to a CollegeBound 529 account for birthdays, holidays, graduations, or any moment they want to mark with something meaningful. Whether contributing regularly or occasionally, they can play a supportive role in helping a child prepare for future education costs. For families looking for deeper guidance, a financial professional can help determine the best way to incorporate these contributions into a broader plan.
Final thoughts
Grandparents have many ways to support the next generation, and a 529 account contribution is one option that can make a lasting difference. By combining long-term growth potential, flexible features and improved financial aid treatment, a CollegeBound 529 account can turn generosity today into opportunity tomorrow.
