Digital gifting to 529 college savings plans is on the rise
November 22, 2021
TIM GRANT | Pittsburgh Post-Gazette
Don’t be surprised to receive a holiday newsletter this year from a friend or family member — and it might even come with a request for a donation to a college savings fund.
The fading tradition of families updating people on what they have been up to all year has been making a comeback, according to higher education funding experts. More families are finding that it’s also a great way to ask others for help footing the college bill.
“What people sometimes do is couple the donation request with a family update,” said Mark Kantrowitz, a Chicago-based expert on paying for college. “It’s natural to put in the family newsletter that the child is planning on going to college in a few years and would love your help paying for it.
“If they send the family newsletter electronically, it’s even better because they can include the URL and all people have to do is click on the link,” he said. “Otherwise, they provide the gift code that identifies the account.”
The season for digital gifting to 529 plans is in full effect now that there are so many ways to contribute to a child’s college fund without needing to touch a piece of paper — be it e-gift cards and registries, crowdfunding apps, or cash-back programs that are tied to qualified college savings accounts.
The college funding community expects an even greater demand for 529 e-gifting programs this holiday season due to supply-chain delays that may prevent some material presents from ending up under the tree. The gift of college lasts a lifetime, and an e-gift for college eliminates the hassle of shopping for a present, or the risk of buying the wrong thing.
Meanwhile, 529 plans have made it easy for parents to seek donations for college by offering them a secure link to a child’s 529 college savings account, which they can use in e-birthday invitations, social media or email.
Some of the largest 529 plans have experienced double-, even triple-digit increases in year-over-year gifting contributions, according to the Washington, D.C.-based College Savings Foundation, a trade organization that represents organizations that support the 529 plan system. Virginia’s 529 plan saw a 44% year-over-year increase in gifting transactions and a 117% increase in dollars contributed.
While asking for money can be awkward, more parents appear to be warming up to the idea of crowdfunding e-gifts for their kid’s educational plans.
A recent national survey of 1,000 parents by the College Savings Foundation found 45% are planning to ask family and friends to make a contribution to a 529 plan this holiday season. Currently, 22% of parents nationwide use 529 college savings plan gift registries, 12% use online giving tools and 7% use e-gift card or gift certificates, the survey found.
Money gifted to 529 plans is allowed to grow tax-deferred and can be withdrawn tax-free for qualified higher education expenses. Pennsylvania is one of more than 30 states that offer a state income tax deduction or tax credit for 529 contributions and gifts.
Pennsylvania allows a tax deduction for up to $30,000 in contributions per beneficiary. It also allows the contributions to be to any state 529 plan, not just Pennsylvania’s.
E-gifts aren’t likely to cover someone’s entire college costs, but every contribution could help reduce the amount a student would need to borrow.
“Many people use them to crowdsource,” said Vivian Tsai, chair of the College Savings Foundation. “We are familiar with the idea of coming together and contributing to some communal wedding present or communal graduation present. But to be able to crowdsource a 529 plan is a fantastic idea.
“The reality is for the generations of parents following mine, it’s become very clear that — while not impossible — it’s very difficult to do it on your own unless you are a high-income earning family.”
Saving for college is now part of the same crowdfunding movement that has helped people raise money for businesses, pay medical bills and take vacations.
Like other states that sponsor a 529 program, Pennsylvania’s 529 college savings plan operates an e-gifting platform through Ugift. Ugift is run by Dresher, PA-based Ascencus.
Ugift allows families to create webpages and share links to a 529 plan account on Facebook and Twitter and other social media sites. Money is drawn from the gift-giver’s checking account and goes directly into the 529, with no fees for the service.
The ability to crowdfund 529 plans could be a game-changer for students trying to pay for college as well as college graduates who have student debt.
Thanks to the Secure Act of 2019, money in 529 plans can be used to pay down up to $10,000 in student debt.
“So, that extends the period over which giving the gift of college has an impact,” said Mr. Kantrowitz, author of the book “Who Graduates From College? Who Doesn’t?”
“You can give before they go to college,” he said. “You can give while they are in college. And now you can give after they have graduated to help then pay down their student loans.”
A report released in November by the College Board, “Trends in Higher Education 2021,” shows the average debt last year for bachelor’s degree recipients at public and private four-year institutions was $28,400.
Ms. Tsai said the $10,000 loan payoff provision in the 529 plan rules will help more young people get a better head start on their futures.
“If you could pay off a chunk of $10,000 straight out of your 529 plan account that’s significant,” she said. “That’s not a small number.”
Ms. Tsai pointed out that the tuition figures advertised by colleges and universities don’t include room and board for students, which is often overlooked in the college cost calculations.
“In my own child’s case, it costs about $28,000 to go to an in-state public state university and make sure that he’s got a roof over his head and books to study in addition to actually having the ability to walk into the classroom,” she said. “And that’s just one year.”
Tim Grant: email@example.com or 412-263-1591
In this Page One Sunday Business story, Tim Grant quotes CSF and Chair Vivian Tsai on the rise in popularity of 529 e-gifting, citing the 15th annual State of College Savings survey of parents and examples of CSF Member gifting programs with double- and triple-digit growth.