Question: A few of my family members would like to contribute money to my son's 529 college-savings account as a gift. How do they do this, and will they be able to get a state income tax deduction?
Answer: Many 529 administrators are making it easier for people to contribute to 529s as gifts. T. Rowe Price, for example, recently introduced a GoTuition gifting portal for its 529 accounts. An account holder can create a profile page online, then share a custom URL for family and friends to make a direct deposit from their bank into the 529 account. Several plans (such as the Colorado CollegeInvest 529, the DC College Savings Plan, College Savings Iowa and Missouri's 529 College Savings Plan) participate in the Ugift program. The program lets you sign up for a code that you can share with family and friends to enable them to contribute to the account online; they don't need to be related to the beneficiary. Go to your plan's website to find out whether it participates in the Ugift program or offers other steps that relatives and friends can take to contribute.
Tax rules vary by state. About two-thirds of states offer an income tax deduction for 529-plan contributions. You generally need to contribute to your own state's plan to get a state income tax break. But a few states, such as Arizona, Kansas, Missouri, Montana and Pennsylvania, let you deduct contributions to any state's 529 plan. Most states let you deduct a contribution you make to someone else's account, but a few, such as New York, let only the account owners deduct contributions. You can find out more about your state's rules at SavingForCollege.com.
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If you live in a state that offers a tax break only to account owners, see if you can qualify for the deduction by opening a separate 529 account. You may need to open the account in your own state to qualify for the tax break, unless you live in one of the states that lets you deduct contributions to any state's plan. There's no limit to the number of accounts that can name a child as a beneficiary. If the child doesn't go to college or doesn't need the money, you can switch the beneficiary to another eligible relative of the child, such as a parent, sibling or cousin. See the “Qualified Tuition Program” section of IRS Publication 970, Tax Benefits for Education, for more information about 529s, as well as a full list of eligible relatives of the beneficiary and other rules.
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Tax Tips for Transferring Excess 529 Plan Funds to Roth IRAs: The Tax LetterThe Tax Letter 529 plans can help blunt the cost of paying for college. But if you want to use leftover funds there are some tax tips to bear in mind.
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529 Plans: Give the Gift of Education (and Compounding)As the cost of college tuition skyrockets, parents and grandparents can take advantage of tax-efficient 529 plans and higher limits on gift and estate taxes.
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Have Leftover 529 Funds? Expert Strategies for Unused BalancesExcess 529 funds represent both a challenge and an opportunity, and knowing your options is essential.
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Using a 529 Plan? Here’s What to Keep in MindAs the school year progresses, ensure you’re using the money for qualified expenses and keeping track of documentation. Taxes and options for unused funds are also considerations.
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Three Reasons You Need to Use a 529 Plan (and Two Reasons You Don't)Tax benefits and a Roth IRA feature make 529 college savings plans attractive, but they're not a one-size-fits-all option.
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529 Plans Get a Boost With Tax-Free Rollovers to Roth IRAsThanks to the SECURE 2.0 Act, you're now able to roll over funds from your 529 into a Roth IRA, as long as certain conditions are met.
