Grandparents: Celebrate National 529 Day with a 529 plan

This upcoming Saturday doesn’t just kick off the start of the long Memorial Day weekend; it also marks one of our favorite occasions of the year: National 529 Day! This holiday is designed to raise awareness of 529 plans, making it the perfect time to explore their unique features and advantages.

What is a 529 plan?

A 529 college savings plan is a powerful tool for contributing to a child’s education. Anyone can open a 529 plan for a student, and anyone can contribute to it over the years. 529 earnings are free from federal income tax and, in most cases, state income tax, as long as they are applied toward qualified education expenses.¹ In short, 529 plans are a convenient, tax-advantaged way to save for the future.

Why should grandparents consider opening a 529 plan for their grandchild?

There are several reasons why 529 plans may help grandparents looking to build an educational legacy for their grandchildren while taking advantage of potential tax and estate planning benefits.

• A perfect gift. There are few gifts more special than that of a higher education. Consider opening a 529 plan to welcome your grandchild into the world or commemorate their first day of kindergarten. You can even turn it into a meaningful tradition by making additional contributions to celebrate milestone events, like birthdays and new school years.
  
• Convenience and control. Anyone can open a 529 plan for a child — not just the parent. As the account owner, you’ll retain control of the funds until they’re ready to be distributed to cover your grandchild’s education. And if your grandchild earns a full scholarship or decides not to pursue higher education, the beneficiary can be changed to another family member (or even yourself).
  
• Tax advantages and estate planning benefits. You may be eligible for state tax benefits, depending on where you live and which plan you use. Over 30 states allow residents to claim a state income tax deduction or credit for contributions to a 529 plan. 529 plans can help with your estate planning, as well. Grandparents can contribute up to $15,000 annually per year with no gift tax ($30,000 if you are married and file your taxes jointly). You could also take an accelerated gifting approach and spread a lump-sum contribution of up to $75,000 ($150,000 if married, filing jointly) over a five-year period while still qualifying for the annual gift tax exclusion.²
  
• No interference with financial aid. 2021 changes to the Free Application for Federal Student Aid (FAFSA^®) have made grandparent-owned 529 plans easier to use without any drawbacks to the student. Before these changes went into effect, students ran the risk of distributions from a grandparent-owned 529 being added to their student income in the following year’s FAFSA, which could have a  negative impact ( also known as the “financial aid trap”). The Consolidated Appropriations Act of 2021 enacted several changes, including removing a question about cash gifts from grandparents. As a result, grandparent-owned 529 plans will not have any impact on need-based financial aid eligibility once these changes go into effect on Oct. 1, 2022 for the 2023-2024 school year. 
  

Ready to learn more about opening a 529 plan for your grandchild? Visit CollegeBound529.com to get started.