Section 529 plans have grown to become one of the most popular ways for students and their families to save for college. Many parents struggle to find the cash to fund these accounts on a regular basis when they are also trying to save for retirement. Fortunately, there are several strategies espoused by college and financial planners that can help those facing this dilemma to sock away the necessary funds for their kids’ futures.
1. Maximize Your Tax Savings
If you’re trying to decide how much to contribute to your plan, try matching it up with the contribution limit for state tax deductions: 33 states and the District of Columbia offer deductions for contributions, and a few of them don’t even require that you contribute to the plan in that state. Kansas offers a maximum deduction of $6,000 for 529 plan donations in any state. Georgia, Mississippi, Oklahoma, Oregon and South Carolina will even let filers take a prior-year deduction for contributions made by the filing deadline. Always check with your state for last-minute changes.
2. Ask for Cash Donations as Gifts
Ask friends and relatives to purchase less expensive items for your children and couple their gifts with small contributions into the plan. Birthdays, holidays and special occasions can combine over time to make a material addition to the account value. E-gifting programs are now available in several states that make it easy for donors to contribute by simply entering their bank account information online and transferring the funds directly into the account. Check to make sure there is no fee involved; programs differ.
3. Donations from the Wealthy
If you are fortunate enough to have friends or relatives who are very well off, consider suggesting a donation into the plan as a way to reduce their taxable estate. One key advantage that 529 Plans offer is the ability to gift an amount equal to five years’ worth of gift-tax exclusions in a single year. For 2014, this means a couple could donate a whopping $140,000 into a single account. Grandparents or other potential donors who have accumulated substantial wealth may also be far more willing to contribute to their grandkids’ futures when they know that the money will be spent on education. Retired donors who have to take mandatory minimum distributions from their retirement plans each year can also funnel this money directly into these plans if they don’t need the income for living expenses.
4. Open a Upromise Account
This nifty program allows families to save by simply registering their credit cards at www.upromise.com and then using the cards to make purchases with online and local retailers. A small percentage of each purchase will then be donated into the plan by the merchant. Fidelity and Upromise also both offer credit cards that pay into 529 plans instead of offering cash back or other traditional rewards.
5. Gamble on Your Kid’s Future
If you play poker or visit casinos on a regular basis, consider donating any winnings you reap into the plan. If you’re lucky enough to win your NCAA basketball tournament pool, this could make a substantial addition to the account.
6. Funnel Contributions Through Yourself
If another donor wants to make a contribution to your child’s plan but won’t be eligible for a state tax deduction, consider requesting that the money be paid first to you so that you can then contribute it if you will receive a deduction. (Of course, be sure to actually make the contribution that is gifted in order to honor the donor’s intention.)
7. Donate Your Tax Refund
If you got a sizeable refund from Uncle Sam this year, consider moving some or all of it into the plan. A $3,000 refund could more than double in 15 years in an account for a young child.
8. Cash In Your Winners
If you made a good stock pick in a retail account and now it’s time to sell, consider moving some or all of the proceeds into the plan. A state tax deduction can help to offset the capital gain that you will have to report.
The Bottom Line
Families who can find creative ways to stretch their college savings dollars further will be ahead of the curve when the tuition bills start to arrive. Other possible savings options include custodial accounts and Coverdell Education Savings Accounts. For more information on college savings, consult your college financial aid officer, high school guidance counselor or financial advisor. For more on savings strategy, read Managing A 529 Plan Based On College Expectations and Crass (But Effective) Ways To Build A College Fund.