By Jessica Wetzel, Wisconsin 529 College Savings Program, Department of Financial Institutions

September 10, 2024

Being a grandparent is an exciting and fulfilling role. From babysitting and going on family vacations to being a pillar of comfort and support, you play a pivotal role in your grandchildren’s lives. You also have the unique opportunity to significantly impact your grandchildren’s future by contributing to their education savings. This gesture not only eases the potential financial burden of college but also inspires confidence and motivation for students, knowing that their family is behind them every step of the way.

One of the most common ways to save for higher education is with a 529 college savings plan. These tax-advantaged accounts offer tax-deferred growth, tax-free distributions when paying for qualified higher education expenses, and many states offer their taxpayers an income tax deduction or credit on contributions.

Even better is that grandparents can experience additional benefits when saving with a 529 plan, all while giving their grandchildren a gift that truly lasts a lifetime. As a grandparent, you can choose to open your own account for a grandchild or contribute to an existing account, likely owned by their parents. Each option is impactful and offers its own unique set of benefits. 

Open Your Own 529 Account

When you open a 529 account and name your grandchild as the beneficiary, you can select your own investment options, receive quarterly statements, access the account online anytime, and eventually take distributions to pay for your grandchild’s tuition or other higher education costs. You can also feel confident that your grandchildren know that the funds saved are from you. And it’s okay if your grandchild already has a 529 plan; they can have multiple accounts opened for them.

The most significant benefit of choosing this route relates to your grandchild’s financial aid eligibility. In the past, money withdrawn from a grandparent-owned 529 plan was considered untaxed income for the student, which could have potentially reduced their financial aid package. Under the new Free Application for Federal Student Aid (FAFSA), distributions from a 529 account owned by grandparents are no longer counted as untaxed income for the student, meaning you can help pay for your grandchild’s education without harming their ability to receive financial aid!

Don’t live in the same state as your grandchild? No problem. Funds saved in a 529 plan can be used at any accredited school, not just those in your state or in the state where the beneficiary lives.

Contribute to an Existing 529 Account
Perhaps you’re just concerned with helping your grandchild pursue the college and career of their dreams, and less interested in managing a new account. If your grandchild already has a 529 plan set up by their parents or anyone else, you can easily contribute to that account for birthdays, holidays, and other special occasions or milestones. Some families even establish informal, matching contribution agreements where grandparents match any contribution a parent or student makes to the account. That way, contributions are doubled and can grow over time!

With this option, you don’t need to worry about opening the account, managing your investments, or taking distributions down the road when your grandchild starts their higher education journey. And even though you are not the account owner, you can still experience tax benefits, like a tax deduction or credit if you’re contributing to your home state’s plan, or if your state allows you to claim this benefit on contributions to any state’s plan.

The Gift of a Lifetime
By taking an active role in saving for your grandchildren’s education, you’re not just helping them financially; you’re demonstrating the importance of planning for the future. Setting aside even a modest amount of savings can be one of the most meaningful gifts you give them – one that will truly last a lifetime.

About the Author

Jessica Wetzel leads the Wisconsin 529 College Savings Program at the State of Wisconsin Department of Financial Institutions (DFI). In this role, she develops effective marketing and outreach strategies to increase awareness of the state’s two 529 Plans – Edvest 529 (direct-sold) and Tomorrow’s Scholar (advisor-sold) – by partnering with entities across the state on educating families on the importance of developing a higher education savings strategy. Before joining DFI, Jessica worked for over a decade in Wisconsin’s community and economic development sector. She successfully led and supported programs and organizations dedicated to helping low- to moderate-income individuals and families achieve homeownership, start small businesses, and join the financial mainstream.