Insight

A smarter holiday gift: Fund a CollegeBound 529 plan by year end

A smarter holiday gift: Fund a CollegeBound 529 plan by year end
Key takeaways
Tax advantages
1

Contributions to a 529 plan will qualify for federal and potentially state tax benefits in 2024 when made before December 31.

Thoughtful gifting
2

A 529 contribution is a meaningful holiday gift that supports a child’s educational future.

Easy to contribute
3

Services like Ugift® and automatic contributions make it simple for grandparents and others to help build education savings.

A holiday gift that lasts a lifetime

The holidays are a time for giving, and what better gift to give than an investment in a child’s future? Contributing to a 529 plan is a thoughtful way to celebrate the season while helping loved ones pursue their educational dreams. It’s also a smart financial move for the giver, offering potentially significant tax benefits. Whether you’re a parent, grandparent, or family friend, a 529 contribution is a gift that can far outlast the holiday season.

Tax benefits of 529 contributions

529 contributions offer meaningful financial advantages. Contributions qualify as gifts under IRS rules, allowing you to take advantage of the annual gift tax exclusion. As such, be sure to get your contributions in by December 31 to qualify for this year’s tax advantages. In 2024, a parent or loved one can contribute up to $18,000 per recipient (or $36,000 for married couples filing jointly) without impacting their lifetime gift tax exemption.

For example, imagine a grandmother with four grandchildren. By contributing $18,000 to each child’s 529 plan, she can gift a total of $72,000 this year without triggering gift taxes. For those looking to contribute more, what is known as the "superfunding" option allows up to five years’ worth of contributions in one lump sum—$90,000 per child in 2024 (or $180,000 for married couples).

The main attraction of 529 plans is their potential for tax-free growth. So long as the funds in the account are used for qualified education expenses, any earnings generated within the account are not subject to federal income tax and are generally not subject to state tax1. This tax-free compounding is a powerful way to grow educational funds.

It’s also worth checking your state’s specific rules. Many states offer tax deductions or credits for 529 contributions, but eligibility and amounts vary. Some states require contributions to their own 529 plans, while others extend benefits to out-of-state plans.

A thoughtful gifting option: Ugift®

Looking for a creative way to involve family and friends in a child’s educational journey? Consider Ugift®, a free service that makes it simple and easy for anyone to contribute to a 529 plan. Here’s how it works:

  • Unique code for each beneficiary: Every 529 plan generates a unique Ugift® code, which can be shared with family members, friends, or even employers.
  • Simple and secure contributions: Contributors visit Ugift529.com, enter the unique code, and make a secure payment without accessing personal financial details.
  • Flexible gifting: Ugift® accommodates one-time gifts or recurring contributions, allowing supporters to give according to their means and preferences.

Make saving effortless with automatic contributions

529 plans also offer the option to set up automatic contributions, making consistent saving easier than ever. This approach not only simplifies saving but also ensures regular contributions that can take full advantage of tax benefits over time.

By automating your savings, you can better manage annual contribution limits and potentially maximize tax advantages each year. Thoughtful automatic monthly contributions can help spread out your gifts throughout the year and ensure you stay within the annual gift tax exclusion.

To learn more about setting up automatic contributions, visit Invesco’s guide to 529 plans.

Give the gift of education this holiday season

A 529 plan contribution is more than just a holiday gift—it’s an investment in a brighter future. Whether you’re a parent, grandparent, or family friend, your support can help a loved one achieve their educational dreams while also providing you with valuable tax benefits. With options like Ugift® and automatic contributions, it’s never been easier to give a gift that lasts a lifetime.

This holiday season, skip the wrapping paper and contribute to a CollegeBound 529 plan by December 31 to potentially maximize tax advantages and create a lasting impact.

Footnotes

  • 1

    Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

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