Change your thinking! Don’t get stuck following old rules. Tax-favored college savings plans (know as 529s) have had several changes in the last couple of years, and more are upcoming for 2023-2024.

1. You can use them for a kid’s elementary and high school tuition, whereas they were only available for college in previous years. Why would you want to do this? Maybe the child is going to an expensive private school pre-college, but you’re expecting a somewhat cheaper, perhaps state university. Or, the grandparents have set aside significant money or promised to fund college. Or you have stock grants that will vest in 3 years, in time for college but not available now. Usually, the big-ticket item is college, but not necessarily.

2. Federal aid formulas will no longer count grandparent contributions withdrawn from a grandparent-owned 529 plan as student income, as of 2023-2023. It will not be counted against the student for financial aid determinations. Of course, this is only important if the student would be actually eligible for federal student aid. Private colleges can ask about anything they want, and use it in their own private formulae for awarding their own, non-federal funds.
Nearly all private colleges will require the family to file a FAFSA form, but even if a family doesn’t qualify for federal aid, they may still qualify for aid from a private college, especially if the school is seeking to attract the student. But don’t depend on it, and don’t brush off saving with the tired, “My kid is so smart they’ll get a scholarship”. So is every other kid. Don’t bank on it (pun intended).
3. You can contribute more, and you can front-load (as in, you got a bonus or windfall). In 2023, the annual gift tax exclusion rises from $16,000 to $17,000. This applies to each beneficiary, from each donor/giver. Each single yearly gift to each recipient cannot exceed $16,000/$17,000. In addition, there’s a provision for “front-loading” by giving 5 years’ worth of exclusions in one lump sum ($80,000/$85,000 per donor), using up the gift tax exclusion of each donor. But what if you wanted to give more—say, $20,000 to a grandchild per year? The grandparents will need to file a gift return documenting how much more they’ve given, which will count against their lifetime exclusion of $12.6 million. If you anticipate your estate will exceed $12.6 million, your heirs will need to present copies of your gift tax returns. Note: no gift tax is due at the time you give the money—you’re only creating a record to be applied against your estate. Most people will not have a estate that meets the $12.6 million threshold, so likely no gift tax will ever be due. You just need to keep the record and file the form.

4. You can rollover a 529 account to an ABLE account, up to the annual contribution limit In the tragic event that your child becomes disabled before age 26, the money can be transferred to an ABLE account to fund qualified disability expenses, including housing and education. This is a somewhat complex procedure and you’ll probably need to see me about your specific circumstances, but it does allay one fear of contributing—that the money will not be lost or taxed if the child doesn’t go on to further education.