Wise and wonderful: Grandparents can help fund a future

You've showered them with love — and spoiled them with ice cream. Now's your chance to provide them with the gift of education — and a good start on a future with less financial stress. Tax-advantaged contributions to college savings accounts can help your grandchildren navigate college and beyond.

Grandparents enjoying time with grandchild

Key takeaways

  • Help your grandchild by reducing future student loan debt.
  • Learn about the tax benefits on your contributions.
  • Understand how contributions of any amount can really add up over time.

Gifts that do some good

Making contributions in order to save for your grandchildren's education is a great way to help them achieve their dreams.

A big contribution can make a big difference

If you're ready to kick in to a college fund, check with your child to see if your grandchild has a 529 education savings plan. If one hasn't been opened yet, talk to your child about starting one, or surprise her by opening an account with your financial professional.

It's good to know:

  • CollegeAmerica® 529 savings plans have no income restrictions.
  • Each taxpayer can contribute up to $15,000 annually per child ($30,000 for married couples) without gift tax consequences.
  • Under a special election, you can contribute up to five years at once (up to $75,000, or $150,000 for a couple) without it counting against the lifetime gift tax.

Not only are there tax benefits to a 529 savings plan, but more importantly, the money contributed early on can continue to grow, helping your child and grandchild with future costs for education. Note that tax deductions may be disallowed in the event of non-qualified withdrawals. State tax treatment varies.

Smaller contributions make a big difference too!

If making a sizable lump-sum contribution isn't realistic for you, consider making smaller, regular contributions every year. Those gifts really add up.

Imagine your child is funding your grandchild's 529 savings plan to the tune of $100/month for 18 years. Assuming a 6% average annual return, she’ll have $36,689 saved by the first semester.

$1,200 a year x 18 years @ 6% average annual return = $36,689

That’s a tidy sum. But if you (as the generous grandparent you are!) kick in two additional $250 contributions per year, assuming a 6% average annual return, that 529 savings plan is now worth $51,977 by the first semester.

$1,700 a year x 18 years @ 6% average annual return = $51,977

* For illustrative purposes. Not intended to portray an actual investment.

Take care of you first

Your heart is in the right place, but don’t fund their future at the expense of your own. Make sure you’re meeting your retirement goals, too. If committing to an ongoing contribution to a 529 savings plan is too much for your budget, consider annual gifts on birthdays or holidays when you can. Every little bit helps. What you contribute today might cover books, and if allowed to grow over time, it could cover part of tuition for a semester.

Check it out yourself.

Learn how small gifts add up over time.

My child is     old

Save     a month starting today

Add additional   per year from gifts

Todayin 18 years
0 years

Estimated savings when your child is 18 years old:

$ 0

* Assumes a hypothetical annual growth rate of 6%. For illustrative purposes. Not intended to portray an actual investment.

Ready to create a detailed plan?

Go to the college calculator

How big of a difference is it?

That’s a difference of nearly $ 0.

Things to do next

  • Check in with a financial professional about the health of your retirement savings before contributing to your grandchildren’s savings accounts.
  • Find out if financial help would be more useful to your grandchild before, during or after college.
  • Use our calculator to see the cost breakdowns of different types of funding.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries.

Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. Before investing in any state's 529 plan, investors should consult a tax advisor. CollegeAmerica is sponsored by Virginia529℠. 

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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.