The Case for Gifting 529 Contributions This Graduation Season
By Hon. Fiona Ma, CPA, State Treasurer of California
May 18, 2021
As we approach summer, students of all ages will soon gather with family and friends to celebrate a key milestone in their lives… graduation. Graduations not only serve as a reminder of key accomplishments, but also of challenges ahead. One challenge: the cost of higher education. Fortunately, 529 college savings plans across the country offer easy ways for family and friends to contribute towards a student’s future educational expenses. These include innovative gifting platforms that allow families and friends to play an important part in supporting a child’s path to college. And what better time to remind families of this great opportunity than a special milestone like graduation!
Providing a student with a monetary gift to a 529 college savings plan says at least these four things to that person:
- I believe in your ability to pursue higher education.
- I want you to learn the value of saving and compound growth.
- I cannot keep buying you video games.
- You deserve better than being burdened with years of student-loan debt.
Contributions towards a 529 plan can serve as a key stepping stone towards building a consistent habit of savings. These plans offer excellent benefits, tax-free growth on investment earnings and tax-free withdrawals when used for qualified expenses.
Additionally, it is never too late to contribute to a 529 plan as money can be used for graduate education or rolled over to another family member. Savings in a 529 plan also have minimal impact on financial aid eligibility compared to other savings vehicles. As the Free Application for Federal Student Aid (FAFSA) updated its form, it no longer requires students to manually report cash support, which can make opening up a 529 account an attractive option for grandparents.
For people considering providing a 529 gift, it is important to note that contributions up to $15,000 per beneficiary will qualify for annual gift tax exclusions.
According to the most recent data provided by the College Savings Plans Network, the average family currently holds just over $26,000 in their 529 account. This is just about enough to pay for one year of public college in most states. Offering a gift of any amount towards a student’s 529 plan may allow for compound interest over time that can be used towards paying for a student’s educational expenses such as tuition and fees, room and board, books and supplies, computers and internet access, and other equipment required for enrollment.
With the impact of COVID-19 continuing to challenge family finances and the prospect of sending children to college, 529 gifting options present a unique pathway to help families maintain confidence that affording postsecondary education is within reach.
So, as we look forward to creative ways to celebrate graduations of all kinds, from preschool and kindergarten to high school and college, consider how the gift of college savings can be the most fitting way to acknowledge our students and their accomplishments.
Congratulations to the class of 2021. We hope you cherish the gifts that college savings will bring.
About the Author
Fiona Ma, CPA, is the State Treasurer of California. As Treasurer, she is the banker for California, the fifth largest economy in the world. She also serves as the chair of the ScholarShare Investment Board, which administers California’s ScholarShare 529. Visit www.treasurer.ca.gov/scholarshare or www.scholarshare529.com for more details about ScholarShare 529.