You most certainly can — you can name anyone as a beneficiary of a 529 college savings plan. "These plans can be a useful financial tool for both grandparents and their grandchildren," says Richard Polimeni, director, education savings programs, Merrill Lynch. Under the new tax law, up to $10,000 per year can even be used for elementary and high school tuition, including private and religious schools.
Are contributions to a grandchild's 529 plan tax deductible?
Contributing to a 529 plan can be useful as part of your estate planning, notes Polimeni. Federal tax law permits you to contribute up to $15,000 (for 2019) to a beneficiary's 529 plan each year, free from federal gift taxes. And if you'd like, you can make a lump-sum payment of five years' worth of contributions, or $75,000 ($150,000 for a married couple), in one year. This gives your contribution more time to grow as an investment. But you will have to wait five years to make another contribution, to avoid paying taxes on your gift.
Source: Merrill Edge based on Instructions for Form 709, Internal Revenue Service, pages 6 - 7
What are some of the other benefits of opening a 529 for my grandchild?
You can now use up to $10,000 per calendar year per beneficiary in 529 assets to help pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school.
You can now use up to $10,000 per calendar year per beneficiary in 529 assets to help pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school.
Consider the following advantages:
- Tax-free growth potential.
- Qualified withdrawals (think: tuition, books, etc) are federal — and often, state — tax free.
- Qualified withdrawals (think: tuition, books, etc) are free from federal — and often state — taxes.
As noted above, a 529 plan can allow investment earnings to grow, exempt from federal (and possibly state) income taxes, and withdrawals that are used to pay for qualified higher education expenses — such as tuition, fees or books — are tax-free. Opening a 529 plan for your grandchild will not disqualify him or her from receiving financial aid.
Opening a 529 plan for your grandchild will not disqualify him or her from receiving financial aid.
Could the 529 plan I choose limit my grandchild's college choices?
You can participate in plans sponsored by other states as well as those in your own. It doesn't matter where you or your grandchild live — or even in which state your grandchild plans to attend school. Keep in mind that some states offer their residents a tax deduction on contributions to a 529 plan. When choosing a 529 plan, you'll want to compare fees, investment options and lifetime contribution limits, which may differ from state to state.