How Much Can Grandparents Contribute to a 529 Plan?

A 529 plan is a savings account designed to encourage saving for future education costs. The money invested in these accounts grows free from federal income tax, and withdrawals are also tax-free when used for qualified education expenses. Grandparents can be a source of funding for these plans, providing a way to support a grandchild’s academic pursuits.

Contribution Limits and Gift Tax Rules

The amount a grandparent can contribute to a 529 plan is linked to federal gift tax regulations. For 2025, an individual can give up to $19,000 to any other person, including a grandchild, without any tax consequences. This is known as the annual gift tax exclusion. Since this limit is per person, a married couple can combine their exclusions and jointly contribute up to $38,000 to the same grandchild’s 529 plan in 2025.

A unique feature of 529 plans allows for “superfunding,” which lets a contributor make up to five years’ worth of gifts at one time. For 2025, this means an individual grandparent could make a lump-sum contribution of up to $95,000, and a couple could contribute up to $190,000, treating it as if it were spread evenly over a five-year period.

To use the superfunding option, the contributor must file IRS Form 709, the United States Gift Tax Return, for the year the contribution is made. This form notifies the IRS of the election to spread the gift over five years and must be filed even if no gift tax is owed. If a grandparent contributes more than the annual exclusion amount without making this election, the excess will count against their lifetime gift tax exemption of $13.99 million per individual for 2025.

Deciding on Account Ownership

A grandparent must decide whether to open a new 529 account in their own name or contribute to an existing account owned by the grandchild’s parents. If a grandparent opens and owns the account, they retain full control over the funds. This means the grandparent decides how the money is invested and when withdrawals are made for the grandchild’s benefit.

The alternative is to contribute directly to a 529 plan already established by the grandchild’s parents. This approach is simpler, as it avoids the need to open and manage a new account. However, the grandparent relinquishes control over the contribution to the parent, who has the legal authority to manage the funds.

The ownership structure also influences the grandchild’s eligibility for college financial aid. While grandparent ownership provides control, contributing to a parent-owned account has historically been viewed more favorably in some financial aid calculations.

Impact on College Financial Aid

The ownership of a 529 plan can influence a student’s eligibility for need-based financial aid, determined by the Free Application for Federal Student Aid (FAFSA). Previously, distributions from a grandparent-owned 529 plan were counted as untaxed student income, which could reduce aid eligibility by up to 50% of the distribution amount. The FAFSA Simplification Act eliminated this treatment.

Under the new regulations, distributions from a grandparent-owned 529 plan are no longer reported as student income on the FAFSA, meaning they no longer negatively impact federal aid eligibility. However, many private colleges use an additional form called the CSS Profile to award their own institutional aid. The CSS Profile may ask for information about 529 plans owned by grandparents, which could still reduce eligibility for aid awarded directly by certain colleges.

In contrast, a parent-owned 529 plan is reported as a parental asset on the FAFSA. Parental assets are assessed at a much lower rate, reducing aid eligibility by a maximum of 5.64% of the asset’s value.

How to Make a Contribution

If contributing to an existing account owned by the parents, the most common method is through a plan’s online gifting platform. Many 529 plans use services like Ugift, which generates a unique code for each beneficiary’s account that can be shared. Grandparents can use this code to make a secure electronic contribution without needing access to the account itself.

Contributions can also be made by mailing a check directly to the 529 plan, which requires the account number and a contribution form from the plan’s website. If a grandparent decides to open a new account, they will be the owner and the grandchild the beneficiary. This involves selecting a 529 plan and completing the application process to fund the account directly.