529 Blog – Of Special Interest to Grandparents

529 Blog – Of Special Interest to Grandparents

We have many clients who are grandparents and know all too well that “it takes a village” to afford to send children to college. They’ve learned the basics of 529 plans, but many are unsure of how best to get started.

While there is no one “right answer”, we’ll review several considerations of particular interest to grandparents.

Should grandparents open a 529 account for each grandchild or just one account? All 529 accounts have 1 account owner and 1 beneficiary (the child) at a time – although changes can be made in the future.

An obvious advantage of opening an account for each grandchild is that it’s clear how much grandparents have set aside for each child.

Alternatively, a grandparent could save in a single 529 account. An account can be opened for one child (typically the oldest grandchild) with the understanding that as the account grows, it could eventually be divided among multiple accounts as grandchildren grow and new grandchildren are born.

How important are tax benefits to grandparents? That depends. Many states – including Maryland – offer a state income deduction for contributions to their 529 plans. Nearly every state has a 529 plan, and many states offer state income deductions only for saving in their own state’s plan. We encourage grandparents to consider the 529 plan for their home state first to see if it offers unique state tax benefits to its own residents. It’s fine if grandchildren live in a different state from their grandparents since 529 plans can be used for expenses at “eligible institutions” * across the country – and sometimes even outside of the US. State tax benefits may also affect grandparents’ decisions on how many accounts they choose to open if a state income deduction is available for each account.

There are also federal tax benefits, since 529 savings grow tax deferred and are then tax free when used for “qualified expenses” ** in the future.

What happens if grandparents pass before their grandchildren attend college? We encourage everyone to name an “Account Holder’s Successor” either when the account is opened or at their earliest opportunity. If the account holder passes, then the named successor becomes the new account holder and can continue the legacy of the original grandparent. For that reason, we further encourage grandparents to name a successor who they believe will carry out their wishes for their grandchildren’s education. Choosing a successor is an important consideration since once a successor becomes the new account holder, he/she will have full control of the account.

Can grandparents save for college without having their own accounts? Of course. Grandparents can make contributions to 529 accounts owned by others. It’s important to check whether this affects their eligibility for state tax benefits that may only be available to account holders.

It’s easy to make one-time gifts to 529 plans for birthdays, holidays or other milestones. Many grandparents love this idea since they understand the lasting value of an education as compared with giving the latest toy or clothes that children will soon outgrow. The Maryland 529 plan even offers paper gift cards that can be customized by occasion, so gift givers have a tangible way to present their gift to the child.

These are some of the many ways that grandparents can play an important role in helping their grandchildren to further their education beyond high school while also reducing the amount of student loan debt they may need to achieve their dreams. We’re happy to help answer any questions about saving for college with 529 plans.


*Eligible institutions generally include any accredited public, nonprofit, or proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution. Also, the institution must be eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited postsecondary institutions meet this definition.

**Qualified expenses generally include tuition, fees, room, board, books, supplies and certain expenses for special needs students at an eligible institution.

Any opinions are those of Wagener-Lee, LLC. and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investors or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state.

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement and should be read carefully before investing.