The Gift that Keeps on Giving: Why 529 College Savings Plans are a Smart Choice for Families

When it comes to giving gifts to children, many of us are quick to think of toys, clothes, and other tangible items. However, what if you could give your child a gift that would have a lasting impact on their future? Enter the 529 college savings plan. These plans were designed to help families save for higher education expenses, and they've become increasingly popular in recent years. Daniel Trujillo, a certified public accountant in Albuquerque, New Mexico, was blown away when his friend suggested putting money into a college savings account instead of giving him a traditional gift for his son Teo's birthday. As Trujillo pointed out, "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." It's no surprise that participation rates in 529 college savings plans have been rising, as more and more people recognize the benefits of these plans. According to data from the College Savings Plans Network, total investments in 529 plans jumped to $450.5 billion as of June, up nearly 10% from $412.5 billion the year before. So, what are the benefits of a 529 plan? For starters, these plans offer tax benefits that can help your savings grow faster. Additionally, contributions to a 529 plan are not considered part of the student's income or assets, which means they won't affect their eligibility for financial aid.

But what about asking friends and family to contribute to a 529 plan instead of giving a traditional gift? It may seem daunting at first, but it's actually a smart move. As Wayne Weber, CEO of Gift of College, a gifting platform for higher education and workplace benefits, pointed out, "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." And according to the College Savings Foundation's State of Higher Ed Savings survey, 65% of parents said they would ask a family or friend to make a contribution in 2024. So, how can you ask for college savings gifts? Lee suggests checking whether your plan has a gifting platform, with a link or code that can be sent to friends and family. Alternatively, you can set up a personalized gift page through an app like Backer and share the link with your loved ones ahead of holidays, birthday parties, graduation ceremonies, or even on a baby shower. But what if family members are reluctant to forgo the fun of a wrapped present? Lee suggests splitting the difference. "There's some hesitation sometimes," he said, "but it's not either/or – give a physical book or toy and set up a contribution." And according to Fidelity's most recent data, 79% of parents say they would welcome contributions to their child's college savings account in lieu of traditional gifts, and 66% would prefer it. In conclusion, 529 college savings plans are a smart choice for families looking to save for higher education expenses. Not only do they offer tax benefits, but they also provide a way to ask friends and family to contribute to your child's future. So, the next time you're thinking about giving a gift to a child, consider giving them a 529 plan and watch their future unfold.

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