529 Plan Contribution Tips for Grandparents Saving for College
Opening and (and then regularly contributing to) a 529 education savings account with The Education Plan® for your grandchildren is the perfect opportunity to leave a financial legacy while also providing tax breaks and estate-planning benefits for you. And new regulations governing the treatment of contributions from grandparent-owned 529 plans can give your grandchildren an even greater advantage.
Benefits of the 529 Plan
Unlike regular savings accounts, with a 529 plan, you do not have to pay federal taxes on your earnings and withdrawals, as long as they are used for qualified higher education expenses. Contributions also benefit from compounding interest, which means that your assets' earnings are re-invested in the plan. Essentially your earnings start earning. If you are a New Mexico resident, you have an additional advantage: New Mexico is one of only four states that allows you to claim a state tax deduction every year on all contributions to a 529 plan.
Flexibility and Control
Your grandchildren may ask you for toys or technology, but investing in college savings is one of the best gifts you can give. Although starting early is ideal, you may open a 529 plan at any time in your grandchildren’s lives, whether they are toddlers or teenagers. You may create multiple plans – one for each grandchild – and you control how much and when the funds are disbursed. Any amount you contribute helps relieve some of the financial worry associated with college expenses, such as tuition, room and board, computers, and lab fees.
Smart Giving
Opening a 529 education savings account for your grandchildren is a smart estate-planning tool. In addition to its tax benefits, investing in a 529 account can reduce your potential gift and estate taxes. It also helps you establish a legacy of learning for your grandchildren – one they’ll never forget.
You can contribute up to $19,000 per beneficiary ($38,000 for married couples) each year without having to file a gift tax return. You may also “superfund” your 529 plan by contributing a lump sum distributed over a five-year period; for example, a married couple may give $190,000, but it will be distributed as five contributions of $32,000 each year.
New FAFSA Regulations
In 2020, the federal government passed the FAFSA Simplification Act (FAFSA means Free Application for Federal Student Aid). FAFSA determines eligibility for loans, grants, and work-study programs for students. The act made several changes that became effective in the 2024-2025 academic year.
A significant one is that cash support and contributions received from a third party, such as grandparent-owned 529 education savings plans, will no longer need to be reported as assets when determining eligibility for financial aid. This is huge: grandparents can help reduce the cost of college without negatively affecting their grandchildren’s qualifications for financial aid. Funds from parental 529 plans will continue to be counted as assets for FAFSA.
As a grandparent, you have great influence on your grandchildren. They look up to you and seek your input and support, from the time they are little through adulthood. Be a role model and make saving for their higher education a priority. By opening and regularly contributing to a 529 education savings account on their behalf, you are making an investment not only in their education but also in their future.
Signing up for an account with The Education Plan is simple and can be done in just 15 minutes.
Frequently Asked Questions
A 529 plan is a tax-advantaged investment account that is designed to grow savings for future education expenses for a specified beneficiary. 529 plans offer unique benefits and features that make them an appealing strategy for education related saving.
A 529 plan can be used for “qualified educational expenses.” For federal tax purposes, qualified educational expenses include:
- Tuition and fees at accredited higher education institutions
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- Computer technology, equipment, and internet access
- Up to $10,000 a year for K-12 tuition and expenses (Limit increase to $20,000 in 2026)
- Expenses for educational special needs services
- Transfers to an ABLE account for the beneficiary (transfer subject to annual limit)
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Credentialing expenses and certification programs
- Roth IRA rollover for the beneficiary
If you're not sure if an expense is considered "qualified," we recommend consulting with a tax professional or advisor. Unqualified expenses will be treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals from your 529 plan used to pay for them.
New Mexico residents can deduct contributions to The Education Plan from their state taxable income each year. This includes contributions made to an account that you are not the account owner of.
You cannot deduct contributions from federal income taxes.
Any person at least 18 years old with a valid Social Security Number (SSN) or Tax Identification Number (TIN) can open a 529 account. The account holder chooses the investment options, designates a beneficiary, and requests the distribution of funds.
The cost of college continues to rise, including tuition, housing, food and supplies, so it’s important to begin saving as soon as possible. You can learn more about how much a typical college education costs on our Cost of College page. It’s never too early or too late to start.
The Education Plan offers a variety of investment options to fit you and your family’s needs, risk tolerance and goals. You can see all of the available investment portfolios on the investments page.
Yes, you can use up to $20,000* a year to cover tuition and expenses for K-12 education.
Qualified K-12 expenses include:
- Tuition (public, private, and religious)
- Curriculum materials, books (including digital/online) and instructional materials
- Tutoring and instructional classes**
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission
- Dual enrollment program fees
Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
*Starting in tax year 2026. The annual limit is $10,000 in tax year 2025 and permitted for tuition only.
**Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
(i) is licensed as a teacher in any State,
(ii) has taught at an eligible educational institution,
or (iii) is a subject matter expert in the relevant subject.
You can open an account with The Education Plan online or by mailing in the enrollment form. In order to open an account, you will need the following information:
- Your social security number or TIN
- Your address
- Your bank account information (in order to fund the account)
- The beneficiary’s social security number or TIN
- The beneficiary’s birthday
-The beneficiary’s address
