Considering these rising costs, it’s no surprise that parents would welcome college contributions instead of traditional presents. Luckily, friends and family can help by giving the gift of a college education. Every birthday party, baby shower, or gift-giving holiday can be an opportunity to add to the college fund. Below, we explore some of the ways families can make saving for college a collaborative effort, from the new and innovative to the tried and true. We will focus especially on one of the best college savings tools out there, a 529 College Savings Plan. A 529 plan is a type of tax-advantaged investment account specifically designed for education savings—and it also allows gifts from friends and family, as well as flexibility, tax benefits, and growth potential while managing risk. Plus, there are many cutting edge ways to give into a 529 plan, making giving easier than ever. Regardless of whether your gift recipient has already started saving in a 529 plan or not, there are several ways to contribute. Of course, we will cover the “old fashioned” methods, such as cash and savings bonds. However, there are drawbacks to using these, particularly less potential for growth. But we will lay out all the options, and leave the choice to you! Giving with Backer is as simple as entering the recipient’s email address and paying with a debit card, credit card, or bank transfer. Or, you can visit the child’s unique link, such as Backer.com/Luke. Contributions are deposited directly into the 529 plan. Gift givers can also set up ongoing monthly contributions. It is a good option for grandparents who want to contribute regularly, or one-time gifts can be made for special occasions like baby showers, birthdays, and holidays. There are no mandatory account fees aside from debit and credit card processing fees, though you can pay an optional “tip.” Plus, 10 percent goes towards helping low-income students save for college. However, to contribute through Ugift, the recipient must already have a 529 plan, and the owner must register with Ugift and invite others to participate using a special Ugift code. It’s not possible to contribute if the plan owner hasn’t provided you with a code. Ugift’s service is geared towards special events like birthdays and graduation as opposed to regular ongoing contributions. However, once you’ve been given a code, you can use it to make contributions. Contributions can be made via electronic bank transfers or checks, but no credit or debit cards. The recipient will need to register for an online profile and link an existing 529 plan account or open one to redeem the card. Denominations range from $25 to $200, with a small fee of anywhere from $3.95-$5.95. With physical and online options, these are a nice option for gift-givers who want to give a tangible gift on special occasions, and there’s no need to know account numbers or wait for an invitation to contribute. In fact, anyone can open a 529 for anyone, even if the beneficiary is not your child. Likewise, anyone can contribute to any 529 plan. If you don’t want to open and maintain your own 529 plan, or if the recipient already has an existing plan, you can contribute to that instead. The standard way of contributing to an existing 529 plan is to mail in a check and indicate the plan account number. Typically you’ll also need to print and include the plan’s Additional Contribution Form with your check. The drawback is that they typically earn very little interest (just 0.10 percent currently). However, Series EE savings bonds are guaranteed to double in value after 20 years, for an effective interest rate of 3.5 percent. Plus, while interest earnings are normally subject to federal income tax, earnings on EE bonds can be excluded from income tax when they are used for qualified education expenses. The drawback is that if the money is likely to be deposited in a standard savings account, it’s unlikely to grow much. Currently, the average interest rate on savings accounts is just 0.06% APY. Other methods, like contributing to a savings plan designated for education expenses, can help ensure the money goes towards college. It’s also possible that, while well-intentioned, the money won’t be used for college and will instead be spent on something else.
