As the price of a college education has continued to grow exponentially around the country, more and more families have begun seeking new ways to cover their children’s education-related expenses. In addition to the student loans that have become increasingly necessary to cover the cost of tuition, parents often turn to financial tools like tax-advantaged college savings plans or contributions from family members to build up the tens of thousands of dollars needed to pay for a four-year degree, but adding funds to a loved one’s college savings can prove more than a little complicated. To make things easier, the Gift of College program has streamlined the process of making these contributions, but what exactly is the “Gift of College,” and how does it work? To find out, keep reading as the team at Sootchy explains.
How Gift of College Works
Most people have been to their fair share of weddings, baby showers, housewarming parties, and other events that call for a gift to be given. At many of these gatherings, the expectation is that guests will look up their loved ones’ gift registries and choose a present from the list provided, ensuring that those being celebrated receive the items they want while sparing their friends and family members the effort of having to hunt down the perfect gift.
Gift of College works on the same basic principle. Young people (and their parents) need to save up huge sums of money to cover the cost of college, and that cost is only going up, so some families have started creating registries comprising a single item: a contribution to the college savings plan of a future student.
Like other types of registries, Gift of College allows gift-givers to make their contributions online or in person by taking the following steps:
• Find the Gift of College profile for the person who will receive the gift – your grandchild, niece, nephew, cousin, etc. These profiles can be shared via social media by the owner of the account.
• Choose whether to make a contribution online or through a gift card. The first option will allow you to either send money in the form of a digital gift card or through a link, but you can also opt to have a physical gift card sent to you if handing off a tangible gift is more your style.
• The recipient will go online to their free Gift of College profile and redeem their card.
Keep in mind that any contribution made through Gift of College is irrevocable, as the program can transfer funds to a savings plan but cannot access them once they arrive there. It may also take up to 14 business days before contributions show up in the account.
What Plans Work with Gift of College?
Because there are many varieties of college savings plans out there, it’s important to note that Gift of College works with only one type: 529 plans. These accounts are popular across the nation due to the tax benefits they provide – both at the state and federal levels – as well as the wealth of investment options they offer. The following are the three kinds of 529 plans you can contribute to through Gift of College:
529 Education Savings Plans
One of the more flexible 529 plans is the education savings plan. Contributing to one of these accounts with Gift of College can help the recipient pay for tuition, room and board, books, equipment, fees, and other essential expenses during college.
529 Prepaid Tuition Plans
For those looking to lock in today’s tuition prices at an in-state school, a 529 prepaid tuition plan can offer the means to do so. Contribute to one of these prepaid tuition plans via Gift of College to help your loved one cover tuition costs down the road.
529A ABLE Accounts
If your loved one is living with a disability, contributing to their ABLE account through Gift of College can help with a variety of expenses, including those related to education, healthcare, job training, and housing.
Can Gift of College Help with Student Loans?
Although savings up for college can undoubtedly provide substantial benefits, there are many instances in which a student and their family can’t quite cover the total cost of college and must incur some amount of student debt. If you or a family member have student loans, it’s worth asking: Can Gift of College help with this debt?
The answer, generally speaking, is yes. In addition to enabling contributions to 529 college savings plans, Gift of College also allows friends and family members to put money toward their loved one’s student loans, providing them with the gift of reduced debt. Most student loan providers allow contributions through the Gift of College program, though a few do not; you’ll be able to tell which group your provider belongs to by creating a profile on the Gift of College website.
For those who decide to use Gift of College to help with one or more student loans instead of a 529 plan, the process works in more or less the same way: You’ll open a profile, fill in your information, and share that profile so friends and family can contribute. The only difference is that you’ll enter your loan information instead of details pertaining to a 529 plan when creating your Gift of College profile.
How Employers Can Use Gift of College
While the foundation of the Gift of College program lies in encouraging family contributions to college savings plans and student loans, the CARES Act has expanded federal allowances for Education Assistance Programs and created a tax break for employers who participate in Gift of College. In doing so, companies can not only avail themselves of a powerful financial incentive but can also help their employees tackle student debt.
Employer participation in Gift of College can happen in one of two ways:
• Automated payroll deductions are used to transfer funds to a 529 plan or student loan. Companies who opt for these automatic deductions can also set up fund-matching programs or regular employer contributions through Gift of College.
• Employers can order Gift of College gift cards in bulk, which can then be handed out to employees as a gift or reward.
In either case, employees retain the ability to use these Gift of College funds as they see fit, whether that means putting the money toward their own student debt or making a contribution to a family member’s loans or college savings plan instead.
How Much Can You Give with Gift of College?
Considering the enormous cost of higher education, gift-givers with the means may wonder how much they can contribute to their loved one’s college expenses through Gift of College. When answering this question, there are two main points to keep in mind: the single-contribution limits specific to the Gift of College program and the tax implications of giving money as a gift.
Transaction Limits with Gift of College
Should you choose to give money to a loved one through Gift of College, be aware that the amount you can include in a single contribution is limited. Gift cards are available in more than 3,000 major retail locations in amounts ranging from $25 to $100, while a variable gift card can be given in any denomination of between $25 and $200.
Gift of College and the Federal Gift Tax
Whether through Gift of College or any other platform, contributions made to a 529 plan or someone else’s student loan are considered a gift under federal tax law, meaning that they go toward your annual (and possibly lifetime) limit on tax-free gift-giving. Each year, a person can give up to $15,000 before the gift tax becomes a concern; if you’ve already reached your limit, be aware that a contribution through Gift of College will add to your total for the year.
Do Contributions Through Gift of College Come with Tax Benefits?
All 529 plans provide certain fundamental tax advantages to the owners and beneficiaries of accounts, but some also offer benefits designed to incentivize contributions. Depending on which state you live in and which state administers the 529 plan you’re donating to, you may qualify for a state income tax deduction or credit for making contributions through Gift of College.
That said, the policies of many states feature idiosyncrasies that you should be aware of; for instance, contributing to one of Utah’s my529 plans will not give you a tax break unless you’re the account owner, as the state allows the owner of a 529 plan to be credited for contributions by non-owners. However, there are some states that offer residents a tax deduction for a Gift of College contribution to any 529 plan, so check out your state’s policy to see what benefits it might offer.
Open a 529 Plan with Sootchy and Connect with Gift of College
If the ins and outs of managing a 529 plan are starting to sound complicated, don’t worry: The experts at Sootchy have made it easy to set up and manage your own account. Friends and family can then contribute to the plan via the Gift of College program or by simply downloading the Sootchy app on their mobile device. Learn more about the benefits of 529 plans by visiting Sootchy online today.