Often we give to the ones we love in a variety of ways. We may give them relationship advice, new clothes, or electronic gadgets. Of all the gifts that matter in the long-run, their education is probably the most-valuable. It is estimated that a college graduate will earn nearly double the salary over their lifetime than a non-graduate.

Some parents know which schools they want their children to attend before the children are born, and may pre-pay a specific school, hoping their son or daughter will be accepted. Others may not be able to afford this, but would like to know they are slowly contributing to ease the burden a student will have leaving school if they opt to take numerous student loans. However, the circumstances and the child at two may not be the same as the situation sixteen years later when it is time to go to college.

 529 plans help address the need to ensure funds passed from one generation to another are spent on a college education instead of European vacations and fast cars. A unique feature is their tax-savings structure, in a revocable format. Unlike many trusts and gifts to minors, which allow funds to be passed to other generations with significant tax advantages, the owner of the 529 plan retains control of the funds. If Suzy decides she is going to follow her best friend’s band around the country for a number of years, and Grandpa Joe doesn’t approve, he may change the beneficiary to her little brother. Perhaps Grandpa Joe, as the account owner, had an unexpected emergency after opening the account, rather than having to ask Suzy or her brother for the money, he could withdraw it for himself, subject to penalty and taxes.

A 529 plan may be opened by an individual for another interested party or themselves. Contributions to a plan may come from a variety of sources, but control of the funds remains with the fund opener, not necessarily the beneficiary. Beneficiaries may change within the family of the original beneficiary designee, generally without penalty. Funds are not considered to be in the taxable estate of the account owner (but may be subject to a look-back period for Medicare). Contributions may have tax advantages in both state and federal tax brackets (subject to annual limits). 529 plans may be started for reasonably small amounts of money. As long as the earnings generated in the 529 plan are used for approved college expenses, money can be withdrawn tax-free.

 If you would like to know more, check with a financial professional, a tax advisor, and/or an estate law attorney. While it may not be the $1000 shopping spree she wanted in the shoe department, Suzy (or her little brother) will recognize the gift you gave as they watch their peers struggle with student loan repayments.