Everything Grandparents Need to Know About 529 Accounts

Giving your grandchild a toy will bring them immediate joy, of course. But contributing to a tax-advantaged 529 college savings fund or Trump Account will be a gesture they can appreciate for years.

“I strongly recommend an investment that makes a difference for a child,” says Nicole Geniesse, a senior vice president at Johnson Wealth in Green Bay, Wisconsin, who opened 529s for all five of her grandchildren and funds them regularly.

I also created 529s for both my young grandchildren soon after they were born and plan on contributing annually to defray the potentially steep costs of their education.

Here’s what to know about 529s, Trump Accounts and other ways grandparents can help their grandchild financially:

529 Plans

State-run 529 plans were initially created to help people save for college or trade schools. But they can now also be used for K–12 school expenses, vocational credentials, professional licensing and to pay off up to $10,000 in student loans.

Contributions to a 529 are invested through the plan (each state offers one), grow tax-deferred, and can be withdrawn tax-free for qualified education expenses. You might get a state tax deduction or credit with the money you put in, depending on where you live.

A grandparent can open and fund a 529 for their grandkid or contribute to one set up by the child’s parent. The contributions in an account opened by the grandparent won’t diminish the financial aid the grandchild might receive through FAFSA later, though funds in a 529 created by a parent will have a small impact. A grandparent and parent can own separate 529 plans for the same child.

You can contribute up to $19,000 to a 529 in 2026 without incurring a gift tax; as much as $38,000 for married couples filing jointly.

You’re also allowed to “superfund” a 529 by contributing up to $95,000 ($190,000 for married couples) in one year, essentially five years worth of contributions, while steering clear of the gift tax. “That gives you the ability for the earnings to compound, which is super beneficial,” says Evan Mills of Scholar Financial Advising in Winston-Salem, North Carolina.

Some grandparents (and parents) have trepidations about 529s, fearing the plans will be useless if their grandchild doesn’t go to college or winds up with more money than needed. But, says Geneisse, up to $35,000 in a 529 can be converted into a Roth IRA for your grandchild’s eventual retirement if you’ve had the account at least 15 years and the funds have been in the account more than five years.

You can also take excess money from an overfunded 529 and change the beneficiary to another grandchild or even to yourself. “That flexibility is so great,” says Lisa Tuttle, a financial advisor with The Tuttle Group in Edina, Minnesota, part of Ameriprise Financial.

Mills’ grandmother created and funded a 529 for her grandchildren, but their parents also had 529 plans, and her account ended up being overfunded with residual money. “So, now she’s using the overfunded plan to take classes at Purdue,” Mills says.

I had a somewhat similar experience. One of my sons didn’t need roughly $30,000 of the money we saved in his 529 because he received a college scholarship, so years later I updated the beneficiary of his 529 so his baby girl will benefit from it.

You can fund any state’s 529 plan, which can be used no matter where your grandchild goes to school. (The Savingforcollege.com site has a plan-to-plan comparison.) When deciding among the plans, make sure to compare their fees, managers, and investment choices. More than 30 states offer tax deductions or credits for 529 contributions, typically for residents. If yours does, you may want to use its plan. There are no federal tax deductions for 529 contributions.

Many 529s let you invest contributions in lifecycle funds that are made up primarily of stocks when the child is young and then automatically, gradually move into more conservative investments like bonds to avoid the chance of the accounts shrinking due to a market drop when funds are needed. “Lifecycle funds work really well for people who want to keep investing simple,” says Geneisse.

If you’re thinking about opening a 529, discuss this with your child to see if they’d rather you invest in their account, says Tuttle. She also advises grandparents setting up 529s to name successor owners in case they die before the funds are used. That way, the backup person can take over ownership if necessary.

Trump Accounts

Tax-advantaged Trump Accounts, aka 530A accounts, for children under 18 became available July 4, 2026, and families—including grandparents—can contribute up to $5,000 a year per child; that amount will be indexed for inflation after 2027.

Bonus: The U.S. government will put $1,000 into every Trump Account opened for babies born between January 1, 2025, and December 31, 2028. That $1,000 could grow to $94,000 by age 65 if the account earns 7.25% annually, according to J.P. Morgan Asset Management.

But a grandparent can’t open a Trump Account for their grandchild unless the child is their dependent, or the parent or adult sibling is “unavailable.” Grandparents can contribute to the parent’s Trump Account, though.

Contributions to 530A accounts are invested in low-cost stock index funds, whose earnings generally grow tax-deferred (some states are expected to tax the accounts’ earnings annually). Withdrawals made before age 59 ½ generally come with a 10% tax penalty, waived for education and a few other qualified expenses.

Unlike 529s designed for education, Trump Accounts are long-term investments for a child’s retirement. After a child turns 18, their account can be converted into a traditional IRA.

“Trump Accounts and 529s aren’t meant to replace each other; they’re meant to complement one another,” says Tuttle.

While some financial advisors recommend grandparents contribute to both 529s and Trump Accounts, others are taking a wait-and-see attitude toward the new accounts. “Trump Accounts are such a new option, we’re still exploring them,” says Geneisse.

Other Ways to Help Grandkids Financially

Two other ways grandparents can give their grandkids a financial boost: Coverdell accounts, also called Education Savings Accounts, and custodial accounts called UGMAs (Uniform Gifts to Minors Act ) and UTMAs (Uniform Transfers to Minors Act).

In a Coverdell, offered through financial institutions, earnings grow tax-deferred and withdrawals are tax-free when used to pay education expenses for kindergarten through college. A grandparent can invest up to $2,000 a year in a grandchild’s Coverdell if their income is $95,000 or less in 2026 ($190,000 or less for married couples filing jointly). But that $2,000 limit applies to all contributions, so if the child’s parent has fully funded the Coverdell, the grandparent can’t add to it.

Custodial accounts at financial institutions are managed by adults for children until the kids are no longer minors. An UGMA holds stocks, bonds, or cash; an UTMA can also hold real estate and other investments.

The advantages of custodial accounts: There are no contribution limits and the money can be used for any purpose. The disadvantages: Grandparents get no tax breaks when funding them and, in 2026, earnings above $2,700 are taxed at their tax rate, not their grandchild’s tax rate. Children get full control of their UGMA/UTMA accounts when they reach the age of majority (which ranges from 18 to 25 depending on the state), and at that time, they can, in theory, use the money however they see fit.

“If the goal is your grandchild’s education, in my opinion, the 529 plan is the most advantageous way to do it,” says Tuttle.

As seen in Babylist.com