Grandparents and 529 Plans: What You Need to Know
Grandparents can open a 529 education savings plan for a grandchild, and they can also contribute to an account that a parent has already opened. The Education Plan® is open to grandparents in every state, and you can open an account in just 15 minutes with a variety of flexible contribution options.
You don’t need a large lump sum or a finance background to make a real difference for your grandchild. A little today can go a long way. Here’s what to know about your options, the tax benefits, and how to get started.
Grandparents and 529 Plans: What You Need to Know
Grandparents can open a 529 education savings plan for a grandchild, and they can also contribute to an account that a parent has already opened. The Education Plan® is open to grandparents in every state, and you can open an account in just 15 minutes with a variety of flexible contribution options.
Can a Grandparent Open a 529 Plan?
Yes. Many people open 529 accounts for beneficiaries other than their children, like grandparents opening accounts for their grandchildren. When you open one, you become the account owner, which means you stay in control of the funds. This includes how much you contribute, how the money is invested, and when funds are withdrawn. Many decide to make their grandchild the beneficiary.
To open an account, you will need your grandchild’s full name, date of birth, address and Social Security number.
Should You Open Your Own Account or Contribute to an Existing One?
Both are good options, and some families choose to do both. Here are some things to consider as you decide which is the best option for your situation and goals for the future.
Open your own account if you want to decide how much goes in, how it’s invested, and when funds are withdrawn. Owning the account also lets you keep the 529 funds separate from the parents’ savings or ownership, and it’s the route to take if you’d like these savings to be part of your estate plan.
Contribute to an account the parents own if you’d rather they manage the account. Ugift® makes gifting into an existing account with The Education Plan simple. The parents share a code, and you can give online without needing their login. It’s an easy and purposeful answer to the question of what to get for birthdays and holidays.
What Are the Tax Benefits for Grandparents?
Earnings on the savings grow tax deferred, and withdrawals are tax-free when used for qualified education expenses.
If you live in New Mexico, contributions to The Education Plan are eligible for deduction from your New Mexico taxable income, whether you own the account or you’re contributing to one the parents own.
How a 529 Fits Into Your Estate Plan
Here’s something important to know about 529 accounts. The money you contribute is treated as a completed gift and moves out of your taxable estate, yet you keep control of the account as its owner. Very few savings accounts allow you to do both.
If you’d like to give a larger amount at once without bumping up against gift tax limits, there’s a provision built for that. The five-year gift election (sometimes called super-funding) lets you contribute up to five years’ worth of the annual IRS gift tax exclusion for one beneficiary in a single year, then treat it as if it were spread evenly across those five years for gift tax purposes.
What Can the Money Be Used For?
Money in a 529 plan can be used for a wide variety of educational expenses, not just college tuition. Qualified education expenses include:
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Tuition, fees and expenses at colleges, universities, community colleges and trade or vocational schools nationwide. Eligible expenses include:
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Books, supplies, computers, and internet access
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Room and board for students enrolled at least half-time
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Registered apprenticeship program fees, books, supplies, and required equipment
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K-12 expenses, including tuition, tutoring and other expenses (up to $20,000 per year per beneficiary)
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Career education expenses such as accreditation, licensure and continuing education courses.
What If Your Grandchild Doesn’t Use It?
The money isn’t lost. You can change the beneficiary to another family member, including a sibling, a cousin, or even yourself. Up to $35,000 can be rolled into a Roth IRA for the beneficiary over their lifetime. Or you can simply withdraw the funds, though the earnings portion would be subject to taxes and penalty.
How to Open a 529 for Your Grandchild
Starting is easier than you might think. Have your grandchild’s name, date of birth, address and Social Security number ready. There is no minimum amount needed to start an account.
You can sign up for an account in about15 minutes with many flexible contribution options. Open your account today.
FAQs
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
Resources for Grandparents
Frame Their First
and Last Days of School
Celebrate and share their first and last days of school with these fun photo frames. Add their photo and a few of their favorite things so you can share this milestone with friends and family — and remember it for years to come.
I’m saving for my granddaughter’s
educational future. She makes me very proud!
— Elaine, New Mexico
