How to Send Money to Your Grandchild/Niece/Nephew’s New York 529 Plan as a Gift

09/21/2012
By
Birthday Cash

Rubbing Cash on Your Child's Face is Not a Good Way to Get Money to a Child's NYS 529 Plan (Photo credit: OakleyOriginals)

Don’t you hate how Christmas shopping is coming earlier and earlier? I’ll forgive you for answering “Yes,” because I’m already planning gifts and coming up with wish lists for my two pre-preschool aged accountants. This year I’m planning something special for Little Girl and Little Guy; I’m adding NY 529 plan gifting to their wish list this year.

Here’s why.

It all happened slowly, which was very different from when I got married. Precisely one day after my wife and I returned home from our wedding ceremony, she took over my entire apartment. Her territory expanded when we bought the house. I’ve long ceded my claim to any personal space. I just became accustomed to being a foreigner in a strange land of taste and home décor. It was controlled by my wife, but it was still home. Then the crawling hoards of little people arrived.

They didn’t seem like a threat at first. We started them off contained to a crib in the corner of a room, but over time they took control of the whole bedroom and then, the entire house. Now there isn’t a corner of my home where a truck, doll or McDonald’s toy does not reside.

That’s not all. Although I’ve become attached to my wonderful children, toys included, it seems that my best case scenario is to have my children leave all their stuff at home while they live in a small dorm room for four years at a college somewhere. With any luck, after this brief stint with all their toys, our children will find a job, a place to live, take their stuff and I can reclaim all the space for my wife to control again…until we have grandchildren.

The odds of this are favorable. My wife and I both have our master’s degrees, which means our children have a 93 percent chance of attending school. The biggest reason young adults choose not to go to school is because of money considerations. So, we can improve our odds greatly if we help contribute to their tuition. Since we have opened a NYS 529 plan, my children’s aunts, uncles and grandparents can also contribute.

Why Giving Money in a 529 Plan is a Great Idea

As custodian of my children’s 529 plan, I get to write off my own contributions from my state income taxes. This benefit does not extend to my children’s aunts, uncles and grandparents who want to send money to the account I’ve set up. However, giving to my children’s 529 plan is still a great idea for my relatives.

The plan allows their gifts to be invested in various financial instruments: stocks, bonds and high-yield savings. Contributions made today could double or even triple in value by the time my kids attend school. That’s a much better gift than some toy that will break in a year.

How to Send Gifts to a Child’s NYS 529 Plan

There are three ways that relatives can gift to a child’s NYS 529 plan.

By Check

This is also known as the “I trust you” way. You can make out a check to the child’s parents and request that they direct those funds to the 529 Plan. I’ve had many relatives use this method and I’ve always followed through.

Ugift

When I sign into my children’s 529 accounts, there is an option to set up an Ugift event. By selecting this option you can either send an email to relatives or create a 529 Plan gift coupon. The email and the coupon are used to notify your relatives that 529 Plan gifts are being accepted and to identify your children’s account should they choose to send money. Once notification is sent out, checks sent with the gift coupon are then deposited into your children’s 529 Plan.

GradSave.com

GradSave.com is a private company that does all the contribution work off your hands. Instead of cutting a check and mailing a coupon, you can use your credit card and GradSave will cut a check for you and send to a child’s account.

The benefit of GradSave is mostly that you can contribute without having to fill out envelopes and checks. You just enter the appropriate information, give a credit card number and GradSave does the rest. However, this convenience comes with a fee; $4 for anything under $50 and 6 percent for contributions greater.

In the past we’ve received checks, but this year I think we’ll give Ugift a try. I’ll be sure to let you all know how it turns out.

Is it a good idea to have relatives send money to a 529 Plan as a gift? Would you send a gift to a 529 Plan is a loved one sent you a Ugift coupon?

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6 Responses to How to Send Money to Your Grandchild/Niece/Nephew’s New York 529 Plan as a Gift

  1. Jason @ WSL on 09/21/2012 at 9:01 am

    I’m not a parent yet, and I’m sure I’ll have a rude awakening when I become one…but we’ll try to implement a rule where aunts/uncles and grandparents will NOT be allowed to buy our kids toys. It will either be (1) clothes or (2) 529 contributions. We’ve already talked to my parents about this and I’m hoping it goes well.

    Kids these days have WAY to many toys. It’s absolute insanity. …and people wonder why so many kids have A.D.D. these days.

  2. I Heart Budgets on 09/22/2012 at 8:57 pm

    [...] How to Send Money to Your Grandchild/Niece/Nephew’s New York 529 Plan as a Gift via @familymoneyblog [...]

  3. AverageJoe on 09/25/2012 at 1:48 pm

    I totally would give. This is a great idea. Do they work with every state or just NY? I’m curious if I can use this program for my kid’s college funds….

    • John on 09/26/2012 at 11:02 pm

      I think GradSave works in all states. U-gift works only with states linked to Upromise.

  4. Marie at Family Money Values on 09/25/2012 at 6:08 pm

    Great idea! Grandparents (myself included) are often at a loss over what the ‘in’ toy is and appreciate the opportunity to help with something more permanent.

    That said, I just read somewhere (AARP??) that income from a 529 plan can be counted against student grants and scholarships. Note that the assets in the 529 don’t count when applying for them, but this article claimed that the next year, the student could get a reduced scholarship or grant.

    • John on 09/26/2012 at 11:01 pm

      My guess is that the article pertained to grandparents who controlled an account for a grandchild. In that case, distributions to a grandchild is considered untaxed income to the child and bumps up their personal assets.

      Assets in a parent’s 529 plan are part of the net worth calculation for financial aid, but it’s not weighted as highly as the scenario above. It would make another great argument for grandparents contributing into a parental controlled 529.

      Great question! Definitely worthy of it’s own post.

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