How to Give the Gift of College This Holiday Season
Saving for college can be tough, but many families do not tap a potentially generous resource: relatives and friends.
Various companies are trying to change that by making it easier for parents to ask for, and receive, contributions to college savings plans. As the holidays approach, these providers are stepping up their efforts to publicize these options and convince families to try them.
"I think people can feel comfortable going out and saying they prefer gifts that are more meaningful," says Erin Condon, vice president of Upromise, a college savings and cash rewards program, run by Sallie Mae.
"They can say, 'Instead of giving our son a truck, how about helping us save for college? Or giving him a smaller truck and putting $20 into his college savings plan?'"
Named after Section 529 of the Internal Revenue Code, 529 college savings plans allow contributors to invest money that can grow tax-free to pay for qualified higher education costs.
Although typically sponsored by states, the plans are run by investment companies and account balances can be spent at any accredited college or vocational school nationwide.
Upromise released a survey last week that found seven out of 10 parents would prefer their children received money for college rather than physical gifts. Upromise offers a way to let others do just that: it is called Ugift, a free online service that families can use to solicit their social networks for college contributions.
Friends and family are emailed bar-coded coupons they can print out and send in with a paper check. The service is available to customers of the 29 Upromise-affiliated 529 plans, which include two of the country's largest: New York's 529 College Savings Program and Vanguard 529 College Savings Plan in Nevada.
Upromise has found that customers who enlist others to help them save via the site's rewards program and shopping portal typically accumulate three times as much as customers who do not, Condon says.
The 529 plans run by Fidelity Investments also offer a free service that allows parents to set up a personalized contribution page and share links via email or social media that allow direct contributions to a child's college savings account via electronic check.
Fidelity released its own poll recently, which found 9 out of 10 grandparents surveyed said they would be likely—if asked—to contribute to a college savings fund in lieu of other gifts for a holiday, birthday or special occasion. Fidelity manages 529 plans for Arizona, Delaware, Massachusetts, and New Hampshire.
These programs tap into the crowd-funding zeitgeist that has seen people appealing to their social networks to help pay for creative projects, charitable causes as well as personal costs such as medical expenses, travel and weddings.
As college costs rise, more people see the need for such help, according to Joe Hurley, founder of the 529 information site SavingForCollege.com.
"It's a reaction to material gifts, and also the rising cost of college that's creating so much anxiety for parents," says Hurley.
Create a College Registry
A few sites facilitate contributions to any 529 plan. GradSave, for example, lets parents set up a free college savings registry that accepts contributions from friends and family. The money is held in an FDIC-insured account until the parents transfer it to their 529 accounts.
Leaf College Savings, meanwhile, offers an education gift card that anyone can use to make a 529 contribution for someone else. The giver loads an amount between $25 and $1,000 onto the card and gives it to the parent, who can then redeem it at the Leaf site and transfer the funds to his or her 529 plan. If the parents do not have a plan, the site helps them set one up.
The gift card, however, comes with an "activation fee" of at least $2.95 plus another $2.95 to get a physical card rather than one sent by email or Facebook or printed out on your computer.
But givers do not need an intermediary to contribute to a college savings plan, says Hurley, since virtually every 529 plan accepts third-party gifts. Those who want to contribute directly to a child's account typically will need to include the account number and perhaps the child's Social Security number, but Hurley notes there is a way to bypass that requirement.
"Just make the check out to the 529 plan, hand it to the parents and say, 'Here, put it into the plan,'" he says. "That's pretty easy."
One thing that may not be easy is figuring out who gets the tax break for the gift. Most states offer tax deductions for 529 contributions when the contributor is a parent. Some offer the break to any contributor. And some do not offer any tax break at all.
The solution? Talk to your tax professional.
Related: More on college savings plans