529 Gift – The Perfect Grandparent Present
One of the best presents a grandparent can give is access to higher education. A 529 Gift is a great present for your grand-kids, and it is easier than ever to get your contributions in the right place, quickly.
Whether you can give a little, or a lot, every bit helps. College is more expensive than when you were young. In fact, one year of school tuition ranges from $10,000 to $40,000+ for average public to private schools (respectively). So, if you happened to pay your way though, that is great, and it is still possible today. However, more often than not, students leave school with large amounts of debt.
What is a 529 Plan Gift?
First, a 529 is a tax-advantaged college savings account. Officially, the government named these plans – Qualified Tuition Plans. The money in these plans are invested in the market, so your money can grow with interest. Each state has access to different accounts, and there are national ones too.
The tax-advantage to this account is that your after-tax, invested money grows tax-deferred. This is true for both federal and state taxes. Some state accounts also allow you to deduct your contributions from your state income taxes up to a certain amount.
In other words, you cannot deduct your contributions from Federal taxes, but in some states you can. Then, when you withdraw your funds to use at a qualified institution, you do not have to pay taxes on either the principal or the interest. (Withdrawals that are not qualified get hit with a 10% penalty.)
Why a 529 Gift is Wise
Here are our favorite reasons a 529 contribution is a great gift:
- Compound interest makes a 529 Gift – a gift that keeps on giving!
- In 30 states, your gift is deductible on state income taxes.
- Children get too much “stuff” for presents. Giving the experience of learning is very powerful and memorable.
- Saving for college, even through gifts, if a good lesson for kids to learn.
- It helps parents (your kids) keep up with the cost of raising kids!
- The kids themselves are not in charge of these accounts, so you know the money has a better chance of being used properly.
How to Gift a 529 Plan or 529 Contribution
To give a college savings contribution, you will either need to set-up a 529 plan if your grandchild does not have one already, or contribute to an already established account. Here is how you do both.
Setting-Up a New 529 Plan
If your child or grandchild does not already have a 529 Plan, you can set one up for them. You will open the plan up in their name. However, remember, this is a custodial account, so they will not have access to the funds.
To start your process, you can find a list of State 529 Plans here with links to each one.
Contributing to an Existing Plan
First, you can send a check to your grandchild’s 529 Plan Account.
Second, there is a free and convenient service you can use to send money electronically to your grandchild’s account. It is called Ugift, and you can find their website here. You will need your grandchild’s unique Ugift code. You will need your family in charge of this account to give you their code. If they logon to their account, they can see a place to get a Ugift code to share with you.
After you have this code, you can go to the Ugift 529 website and enter the code on their homepage to start your contribution. They have printable certificates if you want to give one, but everything will be do electronically from there.
Conclusions
Giving a 529 Gift is a great present for any occasion. Moreover, it is a gift that can grow with time, and won’t end up at the bottom of the laundry pile in 2 weeks.