It’s easy for grandparents to spoil their grandchildren with presents, visits, and cash in birthday cards. But if you want to make a longer-term impact, consider giving 529 college savings accounts.

529 Account Benefits

A 529 account is a tax-advantaged savings plan designed to encourage saving for future education costs. States, state agencies, and educational institutions sponsor 529s, which are authorized by Section 529 of the Internal Revenue Code.

Some of the benefits include tax savings at contribution (in some states), during the lifetime of the account, and at distribution. Few accounts in the personal finance toolbelt offer this type of preferential tax treatment.

While no limit exists on annual contributions to these accounts, remember these two key facts. First, contributions are considered gifts and subject to relevant taxes when they exceed set limits. Second, The IRS limits the total you can contribute because the amount you deposit into the account should equal the amount the beneficiary would spend on an education.

Expanded Use of 529 Account Funds

Because of new laws that expand the uses for 529 accounts, the funds can now pay for private and public universities, graduate schools, trade schools, and even K-12 education. If you use 529 contributions for elementary education, the withdrawal limit is lower and can only apply toward tuition.

If you intend to use the funds for college, keep in mind that since distributions constitute untaxed income, grandparent-owned accounts are not reported in federal student aid applications. Your grandchildren may see their aid eligibility reduced by up to half of the amount of the distribution. As a workaround, you may want to consider delaying any distributions until at least the third semester into a four-year college degree, since the federal aid program only looks at income from the past two years.


Helping a grandchild with college expenses is a wonderful gift. Just make sure that you are aware of the rules and regulations before you make that contribution or take that distribution. Be sure to consult with your financial advisor and tax preparer about your unique situation.

At Savant, we work with individuals to help them leave behind a legacy of their choosing, whether it’s through carrying on family traditions, supporting causes close to their hearts, or transferring wealth to family. If you’d like a second opinion on your portfolio or legacy plans, we invite you to schedule an introductory call with a member of our advisory team.

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