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My first child is due in Mid - April (!!!!). I want to set up a 529 for him and I am curious if grandparents and/or extended family can contribute to it tax free? or is it a tax write off? We live in New York City

While it is fairly likely that my child will attend college, its obviously unclear where he will decide to go. And while this is unlikely, what if there is more money in the 529 than i need for his college? can it be transferred to another child if we have another? Can it be withdrawn and he can pay a penalty on it?

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  • When you say tax free - are you asking if your parents can pay to it without paying taxes on the income that they generated, or without you paying taxes on the gift?
    – Joe
    Feb 17, 2016 at 15:59
  • good question. I would say both. obviously their contribution would be post tax, but do they get a write off?
    – Parzival
    Feb 17, 2016 at 16:02

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This depends in part on who officially owns the account.

Federally, 529 plan contributions are not tax-deductible, regardless of ownership. Anyone can contribute to a 529 plan, though; the earnings of the 529 plan are tax-deferred and are tax-free if they are used for qualified educational expenses.

In the state of New York, the account owner is entitled to deduct up to 10,000 (Married filing jointly) from their state taxes; however, that's limited to the account owner only. If they're not in the state of New York, they may be able to have similar benefits from their home state; check their rules.

You may have multiple accounts for one child, though, so if you and they both want to contribute for your child, that's perfectly fine. The limits are at the taxpayer level, so you can deduct $10k for all contributions to all children's accounts in sum (5k per kid if you have 2, and want to contribute equally, for example), but they can do the same.

Gift tax is the other relevant thing to consider. You can contribute $14k per year without either paying gift tax or adding it to the lifetime maximum (which is currently $1.5MM, but could change at any time either up or down). You can also make a one-time contribution of 70k (5 years' worth) and have that amount exempt as if it were contributed over five years.

For more information on all of this, see the New York 529 Page for more details.

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