Gifts to a 529 College Fund: From a Financial Advisor
Parents already have plenty to worry about, and the rising cost of education only adds to the challenge. For the 2024-25 academic year, tuition and fees have climbed dramatically compared to 30 years ago.
When adjusted for inflation, sticker prices at public two-year colleges are 1.46 times higher. Public four-year colleges are now twice as expensive. Private nonprofit four-year colleges cost 1.75 times more than they did thirty years ago.
With rising costs and the burden of student loans, it may help to ask friends and family to support your child’s education. They can contribute to a 529 college savings account.
Many loved ones give gifts for birthdays and holidays. So, why not suggest a contribution to a 529 plan?
This is a great alternative to toys or games. It’s a thoughtful gift that can make a lasting difference in your child’s future.
Small contributions can make a big difference
One of the best things about gifting to a 529 plan is that even small amounts can add up over time. There’s no minimum requirement, and every dollar counts. For example, if five friends each give $20 for your child's birthday every year, that totals $100 each year for 10 years. Over a decade, that’s $1,000—not including any potential growth from compounding investments.
Here’s an example of how consistent gifting can grow into something substantial over time.
Estimated numbers in chart above have been rounded to the nearest dollar. This hypothetical example assumes the following: (1) monthly contributions to a 529 account from the account owner of $166.66 only, made on the first of each month beginning when the child is born and continuing through age 18. (2) monthly contributions from the account owner of $166.66, and monthly gifted amount of $41.66 to a 529 account made on the first of each month beginning when the child is born and continuing through age 18, (3) annual rate of return of 7.5%, compounded monthly, and (4) no taxes on any potential earnings within the 529 College Savings Plan account.
Local and state taxes, inflation, fees, and/or expenses were not taken into account. If they had been deducted, performance would have been lower. The hypothetical is not intended to predict or project the investment performance of any security.
Past performance is no guarantee of future results. Your performance will vary and you may have a gain or a loss when you sell your units.
Tips for Requesting 529 Contributions
Many parents feel uneasy about asking for money for a 529 savings account instead of regular gifts. However, getting past that discomfort can be beneficial. Here’s why: giving gifts to children brings joy to many.
Kids may not see the value of a college fund right away. They often prefer toys or games. However, the long-term value of a college fund is clear. Helping your child understand the importance of saving for education can make this a meaningful tradition.
Here are some tried-and-true strategies to encourage contributions:
Start early: Open the account when your child is young. Tell family and friends that they can contribute to the 529 for holidays and birthdays. As your child grows, talk to them about the account to normalize it as part of their celebrations.
Celebrate milestones with savings: If loved ones want to reward academic achievements, share report cards or accomplishments. Include details for contributing to the 529 plan. This can be a gift page link or an address for sending checks.
Emphasize small contributions: Many people find it easier to give small amounts regularly than large sums. Show them the power of small gifts. A $50 contribution today could grow to nearly $200 in 20 years. This is thanks to compounding interest. Share visuals or examples to illustrate this growth potential.
Keep it flexible: Let givers decide how much they want to contribute and how. Offer options for electronic transfers, checks, or even cash deposits into the account if that’s easier for them.
Leverage social media: Consider posting your child’s gift page link on social platforms, making it accessible for anyone interested in supporting their educational future.
Incorporate into invitations: For birthdays, include the gift page link in party invitations, along with a note explaining that contributions to the 529 account are a meaningful gift option.
Balance fun and savings for holidays: If you’re overwhelmed with toys, suggest a balance: some fun gifts alongside contributions to the college fund. Let your child know that 529 contributions are celebrated, helping to make this a cherished family tradition.
Make graduations extra special: For milestones like pre-K or 5th-grade graduations, encourage family to pair small personalized gifts (e.g., an item from their alma mater) with a contribution to the 529. This can highlight the significance of education in a memorable way.
Get your child involved: Keep your child informed about their 529 balance and encourage them to save part of their allowance or gift money. You can even offer to match their contributions, turning saving into a shared effort. Family members may enjoy matching gifts as well, making it a group initiative.
By using these strategies early, you can help your child's education. Make them part of your family traditions. This way, you build a strong foundation, one gift at a time.
Gifting as a Tool for Estate Planning
Contributing to a 529 plan can also play a role in estate planning. In 2024, individuals can gift up to $18,000 per person annually to a 529 account without triggering gift tax consequences.
This limit increases to $19,000 in 2025. For married couples, the combined contribution can reach $36,000 per account in 2024 ($38,000 in 2025) without affecting their lifetime gift tax exemption. Once the contribution is made, the gifted amount is removed from the giver’s estate for tax purposes.
For recipients, the good news is that contributions to a 529 plan are generally not taxable, meaning the full gift goes toward supporting educational goals.
The Gift of a Brighter Future
Every dollar given to a 529 plan helps a child’s education, no matter how big or small the gift. By investing in their education today, you’re helping to provide the tools they’ll need to succeed in college and beyond.
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Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
529 Plan, or "qualified tuition plan," is an investment account that provides tax benefits when the savings are used for qualified education expenses. Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, you will incur a 10% penalty and owe taxes on any investment gains.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information
