By Jeremy A. Wechsler, Esq.
Investment Advisor Representative
[email protected]
Summer break used to feel like an eternity, but as adults, we know it flies by. Before you know it, fall will be upon us and school back in session. Hopefully, we’ll get a few breaks in the rain this summer before the school buses start rolling again.
I’ve spoken and written a lot about gifting in the last year, and one thing grandparents love to do is make gifts to their grandchildren.
Sure, gifting to a college savings plan (529) isn’t as exciting as getting a new car or new game console, but it is the smartest gifting strategy from a tax standpoint by far.
529 Plans Are Tax Advantaged
A 529 is a tax-advantaged savings account designed to help families pay for education expenses. You (or anyone else) can contribute money each year (tax free), and it grows tax-free. And when you take the money out for qualifying education expenses—no taxes then, either. Even better: it doesn’t count against your lifetime gift exemption. The term “Triple Tax Advantaged” is music to my ears, and hopefully to yours as well.
These plans are state-sponsored, but you don’t have to live in the state to use its plan.
What Can You Use a 529 For?
Think 529’s are only for college tuition? Today, 529 Plans are incredibly flexible, and the funds can be used for:
• College tuition, room & board, books, fees, meals, and tech
• Student loan repayments
• Trade or vocational school tuition
• Private school tuition (elementary through high school—up to $10,000/year)
Should You Open One for Your Grandkids?
Absolutely. You can open a 529 for each grandchild. In the past, grandparents had to be careful—because if you helped pay for college through a 529, it could mess up your grandchild’s FAFSA (financial aid) eligibility. But in 2024, that rule changed and your contribution will no longer be penalized.
How Much Can You Contribute?
In 2025, the annual gift tax exclusion is $19,000 per donor, per recipient. That means each grandparent can contribute up to $19,000 per grandkid ($38,000 per couple)—without triggering gift tax reporting.
Want to make a bigger impact? A unique 529 rule, called ‘Superfund’, allows you to frontload five years’ worth of contributions in a single year. That’s $95,000 per grandchild from one grandparent—or $190,000 per couple. The catch? You can’t contribute to that same 529 again for five years.
Unused Funds To Roth IRA
What if the funds aren’t fully utilized? A new law (Secure Act 2.0) allows a rollover up to $35,000 into a Roth IRA. There are a few stipulations to this, such as how long the account has been opened (15 years), but the option presents another advantage to contributing to a 529.
Timing Is Everything
As with most investments, the best time to start was 20 years ago. The second-best time? Today.
529s work best when they have time to grow—so even if your grandkids are still toddling around in light-up sneakers, it’s worth setting one up now.
But even if they’re already picking out dorm furniture, it’s not too late. A 529 is still one of the most efficient, tax-smart ways to support your loved ones’ education.
And let’s be honest—there’s something deeply satisfying about helping them chase their dreams and beat the IRS at the same time.