Contributing to a child's 529 account through friends and family is a 'pretty darn cool' way to give the gift of education.

• Saving for higher education is a higher priority for families due to college affordability being a major concern.
• Financial experts often recommend a 529 college savings plan.
• Anyone can contribute to a college savings account, regardless of whether they are the account holder or designated beneficiary.

Giving a child money for college could have a more lasting impact than the season's new hot toy.

Daniel Trujillo, a 39-year-old certified public accountant in Albuquerque, New Mexico, was taken aback when his friend proposed investing in a college savings account instead of giving a gift for his son Teo's birthday.

"Instead of a gift, one of my friends contributed to my son's 529 plan when he turned 2, which I thought was quite impressive, Trujillo stated."

'It's going to take a village'

Gifts from friends and family are also increasing as participation rates in 529 college savings plans rise.

The total investments in 529 plans increased to $450.5 billion in June, representing a nearly 10% rise from $412.5 billion the previous year, as per data from the College Savings Plans Network, which oversees state-managed college savings programs.

In the most recent quarter, approximately 5.4% or $372.6 million of the $6.94 billion in contributions came from plan gifting platforms.

Gift of College CEO Wayne Weber stated that there has been a rise in gifts of varying sizes, with an average of $100, from friends and extended family for a cherished child.

Student loan borrowers anticipate debt cancellation, while private and public colleges offer financial aid and no-loan policies.

According to Chris McGee, chair of the College Savings Foundation, a nonprofit that supports 529 plans, people are more likely to contact their family and friends to help alleviate the financial burden of student loans for their children.

According to the College Savings Foundation's State of Higher Ed Savings survey, the percentage of parents who would ask a family or friend to make a contribution to their child's education increased from 45% in 2023 to 65% in 2024.

McGee stated that it's the understanding that attaining higher education will require the collective effort of a community.

Many agree with financial experts and plan investors that 529 plans are a wise investment option.

In 2024, 74% of parents surveyed have started contributing regularly to a 529, compared to 58% in 2007, according to Fidelity's College Savings Indicator. Fidelity polled nearly 2,000 families with children high school age and younger between April and May.

Fidelity found that only 30% of individuals are on track to meet their college savings goals.

According to Jordan Lee, CEO of Saving for College and Backer, a San Francisco-based company, gifting can help bridge the gap.

Helping a kid with their future in a meaningful way can be achieved through small contributions that accumulate over time, he emphasized.

According to Backer's data, the average monthly gift is approximately $65, while one-time gifts average $370.

The significance of that opportunity can vary based on how actively you promote it to your friends and family, according to Lee.

How to ask for college savings gifts

To check if your plan includes a gifting platform, you can look for a link or code that can be shared with friends and family. If not, you can set up a personalized gift page through an app like Backer and share the link with your loved ones before holidays, birthday parties, graduation ceremonies, or baby showers.

Lee stated that inviting people to contribute in a no-pressure manner is a kind way to do so.

Splitting the difference is suggested by Lee if family members are hesitant to give up the enjoyment of a wrapped present.

Lee stated that although there is sometimes hesitation, the choice is not either/or; providing a physical book or toy and setting up a contribution is acceptable.

Fidelity's recent data shows that 79% of parents would prefer contributions to their child's college savings account over traditional gifts, while 66% would welcome such contributions.

The benefits of a 529 plan

Contributions to 529 plans in over half of U.S. states offer tax benefits, regardless of whether the account holder or designated beneficiary.

Some states provide extra perks, including scholarships or matching grants, to their residents who contribute to their state's 529 plan.

If a child withdraws money from tax-advantaged earnings for qualified education expenses, it is tax-free.

The restrictions on 529 plans have been relaxed to include continuing education classes, apprenticeship programs, and student loan payments.

Starting in 2024, families can transfer unused 529 plan funds to the beneficiary's Roth IRA without incurring taxes or penalties, as long as the 529 plan has been open for at least 15 years.

Tony Durkan, a vice president and head of 529 relationship management at Fidelity Investments, stated that the legislative updates have definitely removed obstacles to accessing 529 plans.

The maximum contribution limits for 529 gifts

In 2023, gift givers can contribute up to $18,000 or $36,000 if married and filing jointly, per child into a 529 without those contributions affecting their lifetime gift tax exemption. This is an increase from the previous year's limit of $17,000 and $34,000 for married couples filing jointly.

Consider "superfunding" 529 accounts for high-net-worth families looking to help fund a family member's higher education by front-loading five years' worth of tax-free gifts into a 529 plan.

Contributing up to $90,000 this year or $180,000 for a married couple would allow you to give more money to the same recipient within a five-year period, but it would reduce your lifetime gift tax exemption.

Fidelity suggests that a larger upfront contribution may result in higher earnings compared to the same-size contribution spread out over time due to the longer time horizon.