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Who Can Contribute to a 529 Plan?

Grandmother baking with her granddaughter after researching who can contribute to a 529 plan

A college degree can offer a wealth of job opportunities and earning potential. Higher education is expensive and may require some careful financial preparation. A 529 college savings plan is one way to save for education with some relative flexibility in how the money can be spent.

Who Can Give to a 529 Plan?

Just about anyone can make a contribution, either to an account they own or to an account owned by someone else. The beneficiary can be your:

  • Child
  • Niece or nephew
  • Godchild
  • Grandchild
  • Friend
  • Yourself

Here's some more information to consider.

Who Can Own a 529 College Savings Plan?

529 plans are available to all U.S. citizens and resident aliens of legal age. Families of all income levels can potentially benefit from 529 plans. Not only do these plans have the potential to grow tax-deferred, but you might not have to pay federal or state taxes on that money when you pay for qualified education expenses.

If you're the account owner, you must designate a beneficiary who will receive the money in the account. You can change the beneficiary at any time. You can make a lump sum contribution to a 529 plan or pay into it over time.

The account owner is not the only one who can contribute to a 529 plan. 529 plans accept contributions from third parties by check or electronic deposit. 529 plans are also investments and come with market risk, including the potential to lose some or all of the principal amount invested.

Can Adults Be Beneficiaries of 529 Plans?

There is no age limit for 529 plan beneficiaries. You can take advantage of potential tax benefits as long as the money is spent on qualified education expenses for the beneficiary. This includes college expenses such as:

  • Tuition
  • Fees
  • Books
  • Supplies

Up to $10,000 per beneficiary per year can also be used to pay for tuition at private elementary and secondary schools. Adults may use a 529 plan to pay for their continuing education at any eligible institution, including public and private colleges, community colleges and vocational schools.

You can also use your 529 plan to help pay down student loans and pay for apprenticeship programs. For student loan repayments, you can spend up to $10,000 on the principal or interest on a qualified student loan of the designated beneficiary or the designated beneficiary's sibling.

Can You Give 529 Plan Contributions as Gifts?

Many 529 plans offer easy ways to ask for and receive contributions from grandparents, aunts, uncles, friends and other loved ones. Parents might consider asking for a 529 plan contribution instead of a traditional holiday or birthday present. Contributing to someone's savings can be more meaningful and lasting than a toy or game.

You can make fairly large 529 plan gifts without incurring federal gift taxes. The annual federal gift tax exclusion allows you to gift up to $15,000 per beneficiary, or you can gift up to $75,000 in a single year and treat it as if you had given it over a five years for tax purposes. Consulting with a tax professional can help you better understand the implications of giving financial gifts.

What Are Some 529 Plan Ownership Considerations?

Whether you are a parent, grandparent or anyone else who wants to help someone save for their education, it's important to understand the rules around owning a 529 plan. These savings plans offer the same potential federal tax advantages regardless of who owns the account, but some other benefits are only available to the account owner.

In some states, residents may deduct all or a portion of their annual contributions from income tax. However, some states only allow the account owner to claim a tax deduction. Anyone who is making a 529 plan contribution should consider checking their state's rules regarding potential tax benefits and consulting a tax expert.

A student's 529 plan assets could also have an impact on their financial aid eligibility. When an account is owned by a parent or dependent student, the money is typically viewed as a parent asset and can have a minimal effect on federal need-based aid eligibility. However, distributions from a 529 plan owned by a grandparent and anyone other than a parent can potentially reduce a student's financial aid award because withdrawals may be considered income. Consider talking to a financial representative for more information.

The Bottom Line

529 plans can be an effective way to save for anyone's future education costs. Understanding who can contribute to an account, and the other rules about ownership, could help you maximize your potential benefits and potentially reach your savings goal faster.

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Investors should carefully consider investment objectives, risks, charges and expenses before investing in a 529 savings plan. This and other important information is contained in the Issuers Program Description which can be obtained from a financial professional. The Program Description should be read carefully before investing.

Securities offered by Registered Representatives through W&S Brokerage Services. Member FINRA/SIPC. All companies are members of Western & Southern Financial Group.

Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.