Every December, for the past 10 years, Lloyd Gurley has put money into his two grandsons’ college savings accounts. He views the money as a gift and likes doing so at the end of the year because it allows him to contribute in a systematic way.
“It is the Christmas season , and that is a good time to provide that,” says the Durham , North Carolina, resident.
Gurley invests the money directly into two North Carolina 529 accounts that he owns. A 529 account is a college savings account that allows money to grow tax-deferred and to be taken out tax-free if used for qualified education expenses.
For those who want to give college savings as a gift, there are now more ways than ever to do so.
That’s important, because 84 percent of parents said they would welcome college contributions in lieu of traditional presents from family and friends, according to a study by Fidelity Investments.
Parents, friends and family spend an average of $658 per child on gifts, according to the study.
[Learn what options there are for giving the gift of college savings.]
“I feel pretty confident a portion of that is going to be on something they lose interest in relatively quickly,” says Keith Bernhardt, vice president of retirement and college products at Fidelity. “If you think about a portion of those gifts going to college savings, it can go a long way, particularly if there’s a long time for that money to grow.”
Bernhardt added that parents are on track to save less than a third of what they hope to cover in college costs, according to another Fidelity study.
“There’s a gap between what they’re hoping to cover and what they’re actually saving,” he says.
Here are four ways to give the gift of college contributions.
[Learn four college savings myths grandparents should avoid.]
— Gift cards: Toys R Us and Babies R Us retail stores across the U.S. are selling plastic gift cards that link to college savings accounts. Offered by giftofcollege.com, an online registry for gifts to 529 plan accounts, friends and family can purchase the cards and give a tangible gift card for college savings.
“It’s not only easy, but it’s really familiar,” says Wayne Weber, founder and CEO of Gift of College Inc. “We all get gift cards every year. Thinking about it in terms of a 529, it should be the replacement of a savings bond from Grandma.”
The cards can be used with any 529 account in the country but are redeemed through the company’s website. The recipient must register for a profile at the site and link to his or her 529 plan account to redeem the card.
California residents might notice that cards there are co-branded with that state’s 529 program, ScholarShare College Savings program. They can still be used for any 529 plan. The cards cost $5.95 to purchase and are also available online.
— 529 websites: Some 529 plans allow college savers to create customized web pages with pictures and information about themselves. Friends and family can then contribute directly to a recipient’s college savings account via the web page.
Bernhardt says these 529 gift platforms give friends and family the peace of mind that the gift is going to college savings.
“There is concern from some friends and family that if they give that cash or check, does it really go toward college savings?” he says. “This way they know it’s going into the 529.”
Plans in about a dozen states , including four states managed by Fidelity, offer gifting options . Check your plan’s website to see what’s available.
[Get tips on how to set a college savings goal.]
— U.S. Savings bonds: The old stand by, savings bonds, can still be given, although not in paper form anymore. Now they need to be purchased via the Treasury Direct website. Certain U.S. savings — series EE (issued after 1989) and series I — can be redeemed free of federal tax es for qualifying higher education expenses.
The benefit is that the bonds are a very safe investment. “You have the backing and safety of it being a U.S. government bond,” says Bernhardt.
But the drawback is that the interest earned will likely be very modest, depending on when the bond is purchased.
— Cash or checks: It may not be cutting-edge, but giving a child cash or a check and earmarking it for college may still be a welcome gift. Nine out of 10 parents say higher education is one of the best gifts they ever received, according to the Fidelity survey.
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
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4 Ways to Give the Gift of College Savings originally appeared on usnews.com
