- Because college affordability is a major concern for families, saving for higher education has become a higher priority.
- Financial experts often recommend a 529 college savings plan.
- Anyone can contribute – you don’t have to be the account holder or named beneficiary to help build a college savings account.
It may not be the new toy of the season, but giving a child money for college could have a more lasting impact.
Daniel Trujillo, 39, a certified public accountant from Albuquerque, New Mexico, said he was thrilled when his friend suggested putting money into a college savings account instead of a birthday present for his son, Teo.
“When my son turned two, one of my friends made a donation to 529 instead of a gift,” Trujillo said. “I thought that was pretty cool.”
“It will take a whole village”
While overall participation rates in 529 college savings plans are increasing, gifts from friends and family are also increasing.
Overall, total investments in 529 plans rose to $450.5 billion through June, up nearly 10 percent from the same period last year ($412.5 billion), according to data from the College Savings Plans Network, a network of state-administered college savings programs.
Of the $6.94 billion in contributions last quarter, about 5.4%, or $372.6 million, came from donation platforms.
“We’re seeing an increase in gifts of all sizes, with the average being $100 from friends and family to a loved one,” says Wayne Weber, CEO of Gift of College, a higher education and corporate benefits gifting platform.
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“People are more willing to turn to family and friends to help keep their child out of student loan debt,” says Chris McGee, chairman of the College Savings Foundation, a nonprofit that provides policy support for 529 plans.
In 2023, 45% of parents said they would ask family or friends to contribute. In 2024, that percentage rose to 65%, according to the College Savings Foundation’s State of Higher Ed Savings survey.
“It’s the realization that it takes a village to afford higher education,” McGee said.
Financial experts and plan investors agree that 529 plans are a smart choice for many.
According to Fidelity’s College Savings Indicator, by 2024, 74% of parents surveyed will have begun making regular contributions to a 529 plan — up from 58% in 2007, when the study was first conducted. Fidelity surveyed nearly 2,000 families with children high school-age and younger between April and May.
And yet only 30% are on track to meet their college savings goals, Fidelity also found.
Gifts can help bridge that gap, says Jordan Lee, CEO of Saving for College and Backer, a San Francisco-based company committed to making 529 plans more accessible.
Even small contributions add up over the years, he added, and can be “a great way to stay involved and help a child shape their future in a meaningful way.”
The average monthly donation is about $65, while one-time donations average $370, according to Backer’s data.
“This can be extremely important, depending on how actively you promote this opportunity to friends and family,” Lee said.
How to ask for gifts to save on college
Lee recommends checking to see if your plan includes a gifting platform with a link or code that can be sent to friends and family. Otherwise, you can set up a personalized gift page through an app like Backer and share the link with loved ones before holidays, birthday parties, graduations or even a baby shower.
“This way we can encourage people to contribute without any pressure,” Lee said.
If family members don’t want to miss out on the fun of a wrapped gift, Lee suggests splitting the difference.
“Sometimes there is some hesitation, but it’s not an either/or – give a real book or toy and make a contribution,” Lee said.
According to the latest data from Fidelity, 79% of parents would welcome contributions to their child’s college savings account instead of traditional gifts—66% would actually prefer this.
The benefits of a 529 plan
There are many benefits to a 529 plan. In more than half of all U.S. states, you can get a tax deduction or credit for contributions, even if you are not the account owner or named beneficiary.
Some states also offer their residents additional benefits such as scholarships or grants if they invest in their home state’s 529 plan.
The earnings then grow on a tax-deferred basis and when a child withdraws the money, it is tax-free as long as the funds are used for qualified educational expenses.
Restrictions around 529 plans have also been relaxed and now include continuing education courses, training programs, and even student loan repayment.
Thanks to Secure 2.0, starting in 2024, families will be able to roll over unused 529 plan funds to the account beneficiary’s Roth individual retirement account without incurring income taxes or penalties. Among other things, the 529 plan must be in existence for at least 15 years.
“The changes in the law have certainly lowered the barriers to entry for 529 plans,” said Tony Durkan, vice president and head of 529 relationship management at Fidelity Investments.
The maximum contribution limits for 529 gifts
This year, donors can contribute up to $18,000 (or up to $36,000 if you’re married filing a joint return) per child to a 529 plan without those contributions counting toward your lifetime gift tax exemption. That’s up from $17,000 and $34,000 for joint tax return for married couples in 2023.
Wealthy families looking to fund a family member’s college education might also consider “superfunding” 529 accounts, which allows five years’ worth of tax-free gifts to be contributed up front to a 529 plan.
In that case, you could give up to $90,000 this year, or $180,000 for a married couple, but then you couldn’t give more money to the same recipient within a five-year period without it counting against your lifetime gift exemption.
According to Fidelity, a larger lump sum payment up front may yield higher returns than an equal payment spread over several years because the investment horizon is longer.
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