This holiday season, don’t be surprised if a parent you know asks for a contribution to their child’s 529 college savings fund instead of the traditional wrapped gift.
Nearly half — 45% — of parents polled in a recent survey by the College Savings Foundation said they intend to ask for gifts to their children’s 529 account, certainly during the holidays but also for other events such as birthdays and graduations.
“We’re seeing an increase in the comfort level families have in sharing 529 gifting programs,” said Vivian Tsai, chair of the Washington, D.C.-based College Savings Foundation. “Parents, friends and family see it as building a community of support for their child and creating gateways to future opportunities for them.”
Parents warming up to the idea of e-gifts for their children’s education speaks to the mounting financial pressure families face paying for college. Some parents who haven’t saved enough take out home equity loans or raid their retirement savings when their children reach college age — risky decisions that could land them on an economic tightrope, financial analysts say.
The strain on families comes down to the fact that attending college has never been more expensive. The College Board reports that for 2023-24, the average annual cost for tuition is $28,840 at in-state public schools; $46,730 at out-of-state public schools; and $60,420 at a private school.
So some parents are turning to crowdfunding.
Online gifting programs make it easy to contribute to a child’s education. Gift of College, which allows anyone to contribute to any 529 plan, saw a 260% increase in year-over-year contributions, according to the College Savings Foundation.
Some families make 529 gifts requests via e-mail or a family newsletter. Others start GoFundMe campaigns.
In other words: Online 529 gifting has begun a new era where the village is no longer just raising the child, but also funding their future.
“We see gifting programs surging during the holidays,” Tsai said.
Chicago-based college funding expert Mark Kantrowitz said asking for money can be uncomfortable for some people. Emailing such requests can make it easier, he said, but some methods are more effective than others.
“The more distant the communication, the less likely it’s going to be successful,” he said. “If you can ask in person, it’s going to be much more effective. But if you don’t feel comfortable doing that, then sending an email asking for help is still pretty effective. A direct email is more personal than if you just broadcast a request to a mailing list.”
Kantrowitz — the author of ‘Who Graduates from College? Who Doesn’t?’ — said the least effective way to get 529 donations is through GoFundMe campaigns.
“A lot of people try that, but it’s generally not effective with random strangers unless there’s some compelling story about what your child is going to be doing,” he said. “If they’re just a kid who wants to go to an expensive college and doesn’t have the money, and they don’t provide any information about what they’re going to do with their life, they probably won’t get anything.”
Parents share the excitement with their children when college acceptance letters arrive, even if they quietly agonize over how they’ll pay for it.
“The reality for most people is you have to save for retirement. You have to pay the bills,” said financial adviser J. Victor Conrad, owner of Pinnacle Financial Strategies in Pine Township. Saving for college falls lower on the list of priorities when budgets are tight, he said, which leads to children taking on student loans and even parents resorting to home equity loans and retirement fund withdrawals to help with the bill.
“I do unfortunately see it, but not with anybody that I’ve worked with,” he said. “I haven’t let any clients dip into their retirement accounts to pay for college. Not only do you stunt the growth, you’ve got to pay income tax on money you take out.”
Money in 529 plans is allowed to grow tax-deferred and can be withdrawn tax-free for qualified higher education expenses. Pennsylvania is one of 30 states that offers a state income tax deduction — for up to $30,000 in contributions per beneficiary — or tax credit for 529 contributions and gifts. The state also allows the contribution to be to any state 529 plan, not just Pennsylvania’s.
Pennsylvania’s 529 college saving plan operates an e-gifting platform through Ugift, which lets families create webpages about the child and share links to the college savings account on social media sites. Money is gifted with no fees.
Tsai said the College Savings Foundation is pleased to see how popular 529 education gifting programs have become.
“One reason is that they combine the best of both worlds,” she said. “It’s an online gift that is easy to make, and also helps friends or family members achieve important long-term goals. Each time a child receives a contribution to their 529, it’s an opportunity for them to learn the importance of saving and talk about their dreams.”
