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How Grandparents Can Contribute to 529 Plans

An older couple sits with their grandchild to discuss how grandparents can contribute to 529 plans.

Key Takeaways

  • Grandparents can open their own 529 accounts for grandchildren or contribute to parent-owned accounts, but owning your own account can provide tax benefits.
  • Money in a grandparent-owned 529 plan doesn't count against the grandchild's eligibility for need-based financial aid on the FAFSA.
  • Contributing over $18,000 in one year can trigger gift taxes for the grandparent.
  • Recent changes may allow tax-free withdrawals from grandparent-owned 529 plans, making them potentially more beneficial.
  • 529 contributions can be a useful estate planning tool for grandparents to pass on wealth while retaining control and potentially reducing estate tax exposure.

A 529 college savings plan is a popular way to set aside money for a child's education, but these accounts aren't just for the parents of young kids — grandparents can contribute to 529 plans, too.

If you're looking to earmark educational funds for grandchildren, putting money into a 529 plan can be a good option. By doing so, you can rest assured the money will be put toward their education and support their future development.

However, before you contribute to a 529 plan for a grandchild, it's important to understand the dynamics of account ownership and related tax rules. Here are some of the most important considerations to take into account, as well as insights that can help you make the most of your money while supporting your grandkids' education.

Account Ownership Matters

As a grandparent, it's up to you whether you open your own 529 account for a grandchild or you make contributions to a plan owned by the child's parents. But opening your own 529 account could potentially offer extra benefits.

For instance, as the account owner, you may be able to deduct 529 contributions on your state income taxes; the deduction limits vary by state.1 If you give to a parent-owned account, your contributions may not be deductible.

If you're interested in lowering your tax bill, you can work with a tax professional in your state to determine the most advantageous way to support your grandchild's education with a 529 plan.

Account owners also call the shots on how money in the account is disbursed, and as the owner, you have the flexibility to change the beneficiary on an account if you choose.

529 Plans Can Impact Financial Aid

Money in a 529 plan can impact a student's eligibility for need-based aid.2 In some cases, a grandparent-owned 529 plan may be a better deal for the student than a parent-owned account.

When your grandchild fills out the Free Application for Federal Student Aid (FAFSA), the money in a parent-owned 529 is counted as an asset, which can limit the student's eligibility for financial aid. Grandparent-owned 529 accounts, on the other hand, aren't considered assets on FAFSA forms and won't reduce a student's financial aid eligibility.

Until recently, disbursements from grandparent-owned 529 plans also counted as taxable income for students, but a recent announcement from the Department of Education suggests they may do away with this rule.3 That means students wouldn't owe taxes on money from grandparent-owned 529 plans, which could make those plans an especially appealing option for families as they save for college.

The guidelines are evolving, and 529 plan rules vary considerably by state, so consider working with a knowledgeable tax or financial professional to make an informed decision for your family.

Large Gifts Could Incur Extra Taxes

Before you set aside educational funds for grandchildren, make note of how much you're contributing. This can help you avoid paying extra taxes.

If you contribute more than $18,000 in one year to a 529 plan, your gift will be subject to the gift tax, and you'll have to foot the bill. This is in compliance with IRS rules on gift taxes that specify a limit of $18,000 per beneficiary in 2024.4

Final Considerations for 529 Contributions & Estate Planning

For some, 529 plans are a useful tool for estate planning and passing on wealth to the next generation in the family. Grandparents can contribute to 529 plans with the aim of potentially reducing the size of their estate — and their tax bill — while retaining control over the money in the account.

Working with a trusted financial professional can help here. These individuals can help you determine how 529 contributions fit into your estate planning goals and objectives.


  1. State Section 529 Deductions. https://finaid.org/savings/state529deductions/.
  2. An Introduction to 529 Plans. https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html.
  3. New FAFSA Removes Roadblocks for Grandparent 529 Plans. https://www.savingforcollege.com/article/new-fafsa-removes-roadblocks-for-grandparent-529-plans.
  4. Frequently Asked Questions on Gift Taxes. https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes.

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