Maximize Your Child’s Education Savings with Contributions from Friends and Family
In today’s fast-paced world, the cost of higher education continues to rise, leaving many parents feeling overwhelmed by the financial burden. However, there is a solution that can help alleviate some of the stress associated with saving for college – contributions from friends and family. By encouraging loved ones to invest in your child’s education, you can maximize your savings and provide a solid foundation for their future.
The Impact of Gifting on Education Savings
Daniel Trujillo, a certified public accountant in Albuquerque, New Mexico, experienced firsthand the impact of gifting on his son’s college savings. When his friend suggested contributing to a college savings account instead of giving a traditional birthday gift to Trujillo’s son Teo, he was impressed by the gesture. Trujillo shared, “When my son turned 2, one of my friends made a contribution to the 529 instead of a present. I thought that was pretty darn cool.”
As more parents recognize the importance of saving for their child’s education, participation rates in 529 college savings plans have been on the rise. According to data from the College Savings Plans Network, total investments in 529 plans have increased to $450.5 billion as of June, up nearly 10% from the previous year. Of the $6.94 billion in contributions in the most recent quarter, approximately 5.4% came from plan gifting platforms.
Wayne Weber, CEO of Gift of College, a gifting platform for higher education and workplace benefits, noted the increase in gifts from friends and extended family. He stated, “We are seeing an increase in gifts of all sizes with an average of $100 from friends and extended family for a child they love.”
The Growing Trend of Gifting for Education
Chris McGee, chair of the College Savings Foundation, emphasized the shift towards seeking contributions from friends and family to alleviate the financial burden of student loans. In 2023, 45% of parents expressed willingness to ask for contributions, a number that increased to 65% in 2024, according to the College Savings Foundation’s State of Higher Ed Savings survey. McGee emphasized, “It’s the realization that it’s going to take a village to afford higher education.”
Financial experts and plan investors agree that 529 plans offer a smart choice for many families. Fidelity’s College Savings Indicator revealed that as of 2024, 74% of parents surveyed have started making regular contributions to a 529, a significant increase from 58% in 2007. However, despite the growing participation, only 30% of families are on track to meet their college savings goals, indicating the need for additional support.
Jordan Lee, CEO of Saving for College and Backer, highlighted the benefits of gifting in narrowing the savings gap. Even small contributions can have a significant impact over time and provide a meaningful way for loved ones to contribute to a child’s future. Lee shared, “The average size of a monthly gift is roughly $65, while one-time gifts average $370. That can be super significant depending on how actively you promote the opportunity to friends and relatives.”
Strategies for Maximizing Contributions
To make it easier for friends and family to contribute to your child’s education savings, consider utilizing gifting platforms or personalized gift pages. Jordan Lee suggested checking whether your plan has a gifting platform or setting up a personalized gift page through an app like Backer. By sharing the link with loved ones ahead of holidays, birthdays, or other special occasions, you can invite them to contribute in a no-pressure manner.
For family members who may be hesitant to forgo traditional gifts, Lee recommended a compromise of splitting the difference. By giving a physical gift along with a contribution to the college savings account, you can incorporate both elements and ensure everyone feels included in supporting the child’s future.
According to Fidelity’s data, 79% of parents are open to receiving contributions to their child’s college savings account instead of traditional gifts, with 66% preferring this option. The flexibility and tax advantages of 529 plans make them an attractive choice for families looking to maximize their savings for higher education.
Advantages of 529 Plans for Education Savings
529 plans offer numerous benefits for families saving for higher education. In more than half of all U.S. states, contributors can receive a tax deduction or credit for their contributions, even if they are not the account holder or designated beneficiary. Some states also offer additional benefits, such as scholarships or matching grants, to residents who invest in their home state’s 529 plan.
Earnings in a 529 plan grow on a tax-advantaged basis, and withdrawals are tax-free when used for qualified education expenses. Recent legislative updates have expanded the eligibility of 529 plans to include continuing education classes, apprenticeship programs, and even student loan payments. Additionally, families can now roll over unused 529 plan funds to the beneficiary’s Roth individual retirement account without incurring taxes or penalties, under certain conditions.
Tony Durkan, a vice president at Fidelity Investments, highlighted the legislative changes that have made 529 plans more accessible to families. He noted, “The updates have broken down barriers to entry to 529 plans, making them a more attractive option for saving for higher education.”
Maximizing Contributions and Tax Benefits
This year, gift givers can contribute up to $18,000 per child to a 529 plan without it counting toward their lifetime gift tax exemption. For married couples filing jointly, the limit is $36,000 per child. High-net-worth families looking to assist with higher education expenses can consider “superfunding” 529 accounts, which allow for front-loading five years’ worth of tax-free gifts into a plan.
By contributing up to $90,000 per child this year, or $180,000 for married couples, families can accelerate their savings and potentially generate more earnings over time. However, it’s essential to be mindful of the limitations on subsequent contributions to the same beneficiary within a five-year period to avoid exceeding the gift tax exemption.
In Conclusion
As the cost of higher education continues to rise, maximizing contributions from friends and family can make a significant impact on your child’s education savings. By leveraging gifting platforms, personalized gift pages, and 529 plans, families can work together to create a solid financial foundation for their children’s future. With careful planning and strategic contributions, parents can ensure that their children have the resources they need to pursue their educational goals without the burden of excessive student loan debt.