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Putting education on the holiday gift list
Here's a great way to boost your child's college savings account: invite your family and friends to direct their holiday and birthday gift money into your 529 plan. A number of 529 plans and online registries are not only promoting the idea, they are also making the process easy.
For example, Upromise Investments Inc. offers a feature called "Ugift" in many of the 529 plans it manages. Anyone with an account in a participating Upromise-managed 529 plan can print coupons or request that an email be sent to specified friends and family suggesting a gift contribution. The invited donors can contribute directly to the 529 account by returning the coupon along with a check. The program notifies the account owner when funds have been received through Ugift.
By year-end, Ugift will be available for account owners of all Upromise Investments-administered direct-sold 529 plans, including:
- Arkansas: GIFT College Investing Plan
- Colorado: Direct Portfolio College Savings Plan
- Hawaii: Hawaii's College Savings Program
- Idaho: Idaho College Savings Program (IDeal)
- Indiana: CollegeChoice 529 Direct Savings Plan
- Iowa: College Savings Iowa
- Missouri: MOST - Missouri's 529 College Savings Plan (Direct-sold)
- Nevada: The Upromise College Fund
- Nevada: USAA College Savings Plan
- Nevada: The Vanguard 529 Savings Plan
- New York: New York's 529 College Savings Program - Direct Plan
- North Dakota: College SAVE
- Pennsylvania: Pennsylvania 529 Investment Plan
Even if your account is not with a Upromise-managed plan, the 529 plan you favor is likely to have gift coupons available that can be used to facilitate contributions from others. Just about every 529 plan now accepts third-party contributions, whether they promote the idea or not. (Gift coupons make the process a whole lot easier.)
Of course, instead of contributing to someone else's 529 account, the friend or family member can open their own 529 account for the child and stay in control of investment and disbursement decisions. However, for small and infrequent contributions the ease of contributing to the parent-owned account often outweighs any advantages of opening a separate account as a non-parent.
Here are a few more considerations for the potential third-party contributor:
- Contributions are treated as completed gifts to the account beneficiary whether the contribution is made to your own account or to an account owned by someone else. The gift-tax annual exclusion is currently $13,000 per beneficiary per year for an individual and $26,000 for a married couple. The special five-year election permits as much as $65,000 ($130,000 for a married couple) in contributions to a 529 plan without staying within annual-exclusion bounds.
- If the contributor lives in a state offering a state income tax deduction for contributions, check to see if state law allows the deduction only for account owners. Several states enforce this restriction.
- Remember that the account owner assumes complete control over the 529 money regardless of the source of funds. A third-party contributor cannot choose the investment option, direct a beneficiary change, or request a refund. Those rights are transferred to the parent/account owner.
- Financial aid treatment may depend on who is named account owner. The value of a parent-owned 529 account is assessed on the FAFSA at a maximum 5.64% rate, while the value of an account owned by a non-parent (and non-student) is not assessed at all. However, distributions from a non-parent 529 account will count as base-year income for financial aid purposes although there may be ways to avoid that result.
Posted November 27, 2009