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A 529 Gift? The Money Talk that Can Help Your Child Go to College

If your child’s lucky, they have lots of doting fans—like grandparents, aunts and uncles, and godparents—who may want to give them a cool holiday or birthday present, searching all over for what’s flying off the shelves.

But there’s one gift that has an endless shelf life: a contribution to a 529 plan that’s been set up for your child. Money invested in a 529 grows tax-deferred and can be withdrawn tax-free to cover qualified education expenses after high school. This takes some of the worry out of paying for college and many other kinds of post-secondary schooling, and helps your child avoid crushing student debt.

Still, it can be tricky to convince loved ones that there’s no better present they can offer than to help your child’s 529 plan grow. That is, if you’re willing to bring up the subject at all. “There’s a reluctance to talk about money,” says Tim Gorrell, executive director of the Ohio Tuition Trust Authority, who manages the overall operations of Ohio’s 529 Plan, College Advantage. “I think it’s human nature.”

The Money Talk: Why Relatives Should Give the Gift of Money

Starting the Conversation

With the right approach, though, you can have a productive conversation with your kid’s would-be toy- and tech-gadget pushers. For starters, you could politely say, “Oh, we have enough bling stuff,” Gorrell suggests. Then mention how you’re already focusing on your child’s future, and are concerned about the debt they may rack up when it’s time for higher ed.

If they’re not convinced, consider throwing in a couple of sobering statistics. “The average loan is now approaching forty thousand dollars,” Gorrell shares. Explain that a well-funded 529 plan is like a financial escape hatch that can save your child from decades of loan payments. And while a free-ride scholarship can do this as well, only one percent of college scholarships cover everything, including room and board.

Be Ready for Questions

“But will the money be managed well?” you may be asked. Luckily, it’s easy to address those fears, Gorrell says. Typically, 529 plans offer a variety of carefully thought-out investment options, including ones tailored to how soon your child may need the funds. They’re overseen by a host of industry experts; Ohio’s 529 plan even gives the option to invest in an advisor-supervised fund with modest additional fees.

Point out that your loved one can also set up a 529 plan for your child on their own if they prefer to steer the investments themself. Almost every state has a 529 college savings program, but people can choose among them all. Ohio’s, for example, is widely considered among the best, ranking first and second in three- and ten-year returns respectively.

Something else to bring up: 529 plan funds can go toward much more than just college tuition and fees. “They can be used for room and board, including on-campus as well as off-campus housing,” says Judy Cunningham, public relations/community outreach manager for the Ohio Tuition Trust Authority. “They can also be withdrawn to pay for computers and the hardware you need for them, plus any type of supplies for a course or degree.”

And what happens if you child doesn’t go to college? It’s a common question so don’t be surprised if your friend or family members ask. This is what to explain: 529 plans do more than help families save for college. Much more. 

“The money also can be withdrawn to pay for community college, trade school, technical school, certificate programs and apprenticeships—basically any education entity recognized by the federal government,” Gorrell shares. “There’s even a dolphin training school that you can use 529 funds to go to.” (And there’s absolutely nothing fishy about doing that.) 

A Gift for Now and Later

If your loved one wants more immediate gratification that the child they love will benefit from their 529 plan contribution, you may be in luck. “You are able to use the funds for private-school K-12 tuition,” Cunningham shares. The money can help after higher ed as well, she adds: “Recent federal changes allow you to use up to ten thousand dollars of a 529 plan to pay towards student loan debt.”

Last of all, shed light on how funds accrued in a 529 plan are permanently earmarked for your child’s use. If they don’t need all the money, it can be transferred to a sibling (including those who are adopted or related through marriage), a first cousin, or even a parent who would like to pursue more schooling. With so many possibilities, the odds that the funds will go unused are pretty insignificant.

It may take a little persuading to make family and friends get on board with your idea of the perfect gift. But it will help your child’s college fund get on track—which means it’s a pitch well worth making. And if they want to top it off with a little something they can use right now, they can always throw in a Target gift card.

Deborah Skolnik

Deborah Skolnik’s work has appeared in Parents, The New York Times, Woman’s Day, and Good Housekeeping; to learn more, visit deborahskolnik.com. She is a frequent contributor to www.yourteenmag.com.

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