Beth Halbach wanted her friends and family to be able to give college savings as a gift for her 1-year-old daughter’s birthday, but she found the gift-giving process available through her college savings plan in Minnesota to be cumbersome.
She ended up using Gift of College, a third-party gift registry that allowed her friends and family to click on a personalized website and make contributions to her daughter’s 529 plan, or tax-advantaged college savings account.
Giving the gift of college savings could get even more convenient this year when Gift of College expects to begin offering college savings gift cards at major retailers, including Target stores and via Gyft, a digital gift card wallet. That could make it the first time physical gift cards for college savings accounts would be available in a big retail market, says Wayne Weber, CEO of Gift of College.
Easier gift-giving and consumer-friendly changes to 529 plans are some of the trends in 2016, described below, that may make saving for college easier and more appealing to families.
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— College savings gift cards: Weber says he has commitments from both Target and Gyft for distribution of college savings gift cards, both electronically and in physical stores. A request for information from Target was not returned.
“You can buy it off the shelf and you can give it really to anyone whether they have a 529 plan or not,” Weber says.
Gift cards are currently offered through the Gift of College website and are redeemable through any existing or newly started 529 plan as well as by some student loan providers.
Gift of College gift cards carry a $3.95 fee, which is paid by the gift-giver. For instance, a $100 gift card costs the gift-giver $103.95.
Halbach, 32, a sixth-grade teacher in Minneapolis, says she was looking for an easy way to give friends and family the option to contribute to her daughter’s college savings, citing that she and her husband are still paying off student debt.
“Any extra that can be contributed is just going to help her in the future,” she says. “I want her to be able to leave college debt-free.”
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— Computer purchases and other 529 plan law changes: Students with 529 plans will be able to purchase computers and related equipment using distributions from their college savings plans, “reflecting the modern reality that a computer is a necessity for today’s college student,” says Young Boozer, Alabama state treasurer and chairman of the College Savings Plans Network, an umbrella organization for state-run college savings plans.
These plans allow contributions to grow tax-free and withdrawals are not taxed as long as they are used for what are known as qualified education expenses. Late in 2015, Congress passed a law to include computers and “peripheral equipment,” including Internet access, as qualified expenses. The new rule is retroactive to Jan. 1, 2015.
The legislation also included some relief for students who get a refund from college. This situation could occur if, for instance, a student withdraws early due to illness, Boozer says. They can re-deposit distributions into a 529 account from colleges without taxes or penalties within 60 days.
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— More direct-sold 529 accounts: Direct-sold accounts, the “do-it-yourself” option for college savers, are on the rise. Direct-sold accounts now hold 52 percent of the market share, according to financial research firm Morningstar.
“Typically the fees on a direct plan are less expensive than on an advisor plan,” Boozer says. “I think people are realizing that’s an easy way to do it. It’s a good way to do it. It’s a less expensive way to do it.”
The trend could also have to do with changes in the wealth management industry, according to Morningstar’s annual report on the 529 industry. “Many advisors have moved from a commission-based to fee-based models,” the report says, which means there’s an incentive to direct clients to cheaper direct-sold plans.
— Bigger account sizes: Some college savers may notice they can now pad their 529 accounts with even more savings.
Michigan more than doubled its 529 contribution cap from $235,000 to $500,000 in 2015, following several other states that also raised contribution limits last year, including Kansas, Arizona and Wisconsin, according to Paul Curley, director of college savings research for mutual fund research and consulting firm Strategic Insight.
Expect that trend to continue, Curley says, as tuition outpaces the Consumer Price Index and student loan debt affects other economic areas, such as housing and retirement.
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
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Keep an Eye on These College Savings Trends in 2016 originally appeared on usnews.com
