Many parents are probably very familiar with 529 savings plans. For those who do not know, 529 plans are tax-advantaged funds that encourage individuals to set money aside to pay the educational expenses of a future student. Many people assume that parents are the only individuals who can contribute money to a 529 plan. However, anyone can contribute to a 529 plan, and more people should contribute to 529 plans instead of providing gifts to children in their lives.
As previously mentioned several times on this website, I am not a parent, and all of the experiences upon which I rely when providing advice to parents come from emails I receive from readers of Student Debt Diaries. However, I am blessed to have a niece and a nephew who are both around two years old. Talking about 529 plans with my siblings who have children has shown me how important it can be for friends and family to contribute to 529 plans instead of providing gifts to children in their lives.
I was not aware until recently that I might contribute to 529 plans instead of providing gifts to my niece and nephew. My niece just turned two years old, and my brother had a birthday party for her a couple of weeks ago. Instead of providing a gift to my niece, my brother suggested that I contribute to a 529 plan to save for my niece’s college costs. My brother even forwarded me a link that I could use to make a contribution to my niece’s 529 plan online through an easy-to-use website.
I was thinking about simply providing my niece with a toy, or perhaps purchasing some clothes for her. However, it might not make sense to provide a two-year old with such gifts. My niece would likely not remember any of the gifts that I gave her, since I doubt she would remember much of anything from the time she was two years old. In addition, my niece is growing up at an amazing rate, so I’m sure she would quickly outgrow any of the clothes I might purchase for her.
However, I reasoned that if I contribute to 529 plans instead of providing gifts, I would have a bigger impact on my niece’s life. My contribution to her 529 plan would accrue interest for years, and would be helpful to her when she was around 18 years old and ready to attend college. At this time, she would be old enough to appreciate my gift, and this would hopefully be more meaningful to her than something she would likely outgrow in a matter of months.
In addition, contributing to a 529 plan is oftentimes much easier than buying a present for a child. It can be difficult to purchase gifts for children, since it can be hard to estimate the size of a child when buying clothes, or the likes of a kid when purchasing toys. Contributing to a 529 plan on the other hand is as easy as going online and filling out some information, and this process can usually be completed in a matter of minutes.
Of course, some parents do not have 529 plans for their children, and one of my brothers has not yet created a 529 plan for his kid. However, offering to contribute to a child’s 529 plan instead of providing a gift can be a good impetus for parents to create such a fund for their child. Some parents are intimidated about contributing to a 529 plan, and do not want to create one, since they believe they will not be able to adequately fund the account. Assuring a parent that you will contribute to a child’s 529 plan and will continue to do so in the future, could encourage individuals to set up such plans and contribute themselves.
Of course, it is also worth mentioning that contributing to a 529 plan provides tax benefits to the contributor. Indeed, you can typically deduct contributions to 529 plans from your income up to a certain point. If you provide a child with any other present, you will likely not realize this benefit, and this is another reason why more people should contribute to 529 plans instead of providing gifts to a child.
There are a number of websites that allow individuals to contribute to pre-existing 529 plans, and everyone should do their research before partnering with one company over another. The company that my brother used when facilitating my contribution to my niece’s 529 plan was UGift. I found this website to be extremely easy to use, and the platform is very user-friendly. When looking for a good website to partner with, it is important to consider how easy the platform is to use, and whether there is any cost to you or the contributor for donating money to a 529 plan.
I feel like the Grinch telling people not to provide kids with traditional presents! Of course, there is a time and place to provide children with clothes, toys, and all of the other traditional gifts usually provided to kids. However, saving for college is a huge undertaking, and this challenge is usually borne by parents alone. Nevertheless, friends and relatives should also consider contributing to a 529 plan instead of providing traditional presents to children, since both the contributor and the child will benefit from this donation.