Ways Grandparents Can Contribute

There are several ways for grandparents to use 529 plans effectively. Whether you wish to establish a new account, add to an existing one, or leverage gifting strategies, explore these options for your financial goals and family dynamic. 

Open a 529 Plan

A grandparent can open and own a 529 account specifically for their grandchild. By doing so, they retain control over the account and its funds. This allows grandparents to monitor contributions and withdrawals, ensuring the money is used for educational purposes. Additionally, if the funds are not used they can change the beneficiary to another qualifying grandchild or family member of the beneficiary without penalty.

Contribute to an Existing Account

If someone has already set up a 529 account, such as the student’s parent, grandparents can contribute directly to that account. Grandparents should understand that the contributions become the property of the account owner and the grandparent no longer has control over the funds. This can be an appealing approach for grandparents who are making smaller gifts such as just for birthdays or holidays. Gift contributions should be coordinated with the account owner of the 529 account.

For an easy way to give, consider purchasing a gift card through an independently owned company such as Gift of College^®, which offers gift cards online or at participating stores in Maine. For details or to learn how the 529 account owner can even set up a registry to make gifting even simpler, check out their website giftofcollege.com.³

Use Gifting Strategies

529 plans are an excellent tool for financial gifting. Grandparents can give up to the annual gift tax exclusion amount—without triggering federal gift taxes. Moreover, a special “super funding” provision unique to 529s allows grandparents to contribute up to five years’ worth of gifts in a single year.  at once, maximizing the growth potential of the account.⁴

About Grants for Maine Residents⁵

If either you, as a NextGen 529 account owner, or your grandchild, as a NextGen beneficiary, is a Maine resident, you can take advantage of the matching grants and automatic funding designed to encourage Maine residents to save in Maine Section 529 Plan–NextGen 529.

Here’s how the grants work:

Frequently Asked Questions about Grants for Maine Residents

Who can get Grants for Maine Residents?

Either the account owner or the student (beneficiary) must be a Maine resident to be eligible for Grants for Maine Residents. Matching Grants are awarded by the Finance Authority of Maine (FAME).

Grants are limited to one per beneficiary. For example, if two different people own NextGen 529 accounts for the same student, the first account to meet the grant eligibility will receive a match. For the yearly NextStep Matching Grant, the first account to receive a contribution in a year will receive the match. In this situation, the parents and grandparents may want to coordinate contributions to make sure the student receives the maximum benefit. See Maine Grant Programs Terms and Conditions for restrictions and limitations that apply.

How are Grants for Maine Residents awarded?

Automatically! FAME awards grants after your account has received the necessary qualifying contribution(s). FAME will send you a letter or an email telling you that you’ve received a grant.

Please note, the NextStep Matching Grant is awarded in the first quarter of a calendar year for the previous calendar year’s contributions.

When it’s time for my grandchild to use their grants, how do they withdraw them?

The account owner can make a withdrawal through their account servicer. Matching Grants are paid only to eligible institutions of higher education. Maine Matching Grant withdrawals are generally mailed to the eligible institution by check, so plan for processing and mailing time. The account owner will need to work with the student to obtain their student ID and school mailing address to complete the withdrawal request, as they cannot initiate withdrawals themselves.

Benefits of Grandparent Contributions

When grandparents contribute to a 529 college savings plan, the impact extends far beyond dollars and cents. These contributions may provide immediate financial relief, long-term educational opportunities, and emotional support that resonates for generations. By using 529 plans, grandparents may potentially take advantage of tax benefits, reduce their grandchildren’s reliance on student loans, and leave a legacy that underscores their commitment to education.

The financial benefits are significant. Contributions to a 529 plan can grow tax-free, and withdrawals for qualified education expenses are also tax-free. In many states (including Maine), grandparents may qualify for state tax deductions for their contributions, further amplifying their savings.⁶ Beyond the tangible financial benefit, contributing to a 529 plan offers peace of mind; it allows grandparents to help with the rising cost of higher education, and gives their grandchildren a head start toward achieving their dreams.

Equally important are the intangible benefits. Supporting a grandchild’s education fosters a deep sense of connection and demonstrates the value of planning for the future. By relieving financial stress, grandparents enable their grandchildren to focus on academics, extracurricular activities, and personal growth. Ultimately, contributing to a 529 plan is a meaningful way for grandparents to show love, support, and investment in their family’s future.

Contributing to a 529 plan may benefit both the grandparents and their grandchildren in several ways:

Educational Support:

• The funds can be used for a wide range of qualified education expenses, including tuition, room and board (half time), books, and supplies. They can even cover up to $10,000 per year for private K-12 tuition in some states, registered apprenticeship programs, and more.
• Helping to fund education reduces the likelihood of grandchildren taking on significant student loan debt.

Tax Advantages:

• Contributions grow tax-free, allowing any investment earnings to compound without the burden of annual taxes.
• Many states (including Maine) offer state tax deductions for contributions to 529 plans, providing immediate savings for grandparents​. Learn more about Maine’s tax deduction. 

Eligible Maine state taxpayers can claim a tax deduction of up to $1,000 per student (designated beneficiary) for contributions they made to a student’s 529 plan account. There are income restrictions to qualify.  

The Maine state tax deduction allows Maine state taxpayers to claim tax deductions for contributions made to multiple beneficiaries’ accounts. For example, if a grandparent contributes to each of her four grandchildren’s 529 accounts, she can claim a tax deduction for the portion of those contributions up to $1,000 for each grandchild.

Legacy Building:

• A 529 plan allows grandparents to leave a lasting impact on their grandchildren’s lives by directly contributing to their educational and professional goals.
• By starting early, grandparents can model the importance of education and financial planning for future generations.

Considerations for Coordinating Grandparent 529 Contributions

While contributing to a 529 college savings plan is a generous and impactful way for grandparents to support their grandchildren’s education, it’s essential to approach it with care and foresight. Like any financial decision, there are considerations that can help ensure that grandparent’s contributions to their grandchild’s future have the highest possible positive impact.

Coordination with parents is crucial. Without clear communication, there’s a risk of overfunding the 529 plan, which can lead to leftover funds, which can incur penalties if not used for a permitted purpose. Additionally, state-specific rules and tax benefits vary, so it’s important to understand how these apply in the grandparents’ and beneficiary’s states of residence. Thoughtful planning can help you navigate these complexities and help ensure contributions are a seamless and beneficial addition to the family’s education savings efforts.

→Check out unused 529 funds options at What Happens to My 529 if My Child Doesn’t Go to College?

Coordination with Parents
To maximize benefits and avoid overfunding, grandparents should communicate with parents about the family’s overall college savings strategy.

State-Specific Rules

Not all states offer tax benefits, so grandparents should consider the tax rules in their state of residence. 

Financial Aid Implications

Money saved in a 529 has a minimal impact on federal financial aid eligibility. Starting with the new FAFSA for the 2024-2025 academic year (published in 2023), grandparent-owned assets in a 529 are treated even more favorably than in the past. Funds from any non-parent owned 529 are not considered student income. However, keep in mind that non-parent owned 529s may be considered differently on the CSS Profile®, if a student attends a school that uses the CSS Profileor by any state or private financial aid program.  You should always check with a financial aid program to determine how 529 Accounts are considered.

Practical Steps to Get Started

For grandparents ready to contribute, the first step is deciding whether to open a new account or contribute to an existing one. Research state-specific 529 plans to determine which 529 plan is right for you and your beneficiary. Consider consulting with a financial advisor to align contributions with estate planning goals. Regular contributions, even small ones, can make a significant difference over time due to potential for compounding earnings.

A Meaningful Gift for the Future

By contributing to a 529 college savings plan, grandparents can provide their grandchildren with more than just financial support—they can offer the gift of opportunity. Whether helping a grandchild afford their dream college, pursue a trade, or embark on a professional path with less student loan debt, your thoughtful investment has the potential to shape their future in profound ways. Through careful planning and coordination, grandparents can create a legacy of education and empowerment that may benefit their family for generations to come.

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1. Qualified education expenses are defined in Section 529 of the Internal Revenue Code. Earnings withdrawn for non-qualified expenses are subject to federal income, a 10% additional tax, and state and local income tax rules, which may vary.  For specific details, see the Program Description. ↩︎
2. Persons other than the account owner who make contributions will have no subsequent control over the funds contributed to a NextGen account. Only the NextGen account owner will receive confirmation of account transactions and may direct transfers, rollovers, investment changes, withdrawals and change the account beneficiary (as permitted under federal law). Third-party contributors may subject NextGen account owners to tax consequences. NextGen account owners and third-party contributors should consult their tax advisors to discuss income or gift tax consequences. ↩︎
3. Gift of College_^® is not affiliated with NextGen 529. Terms and Conditions apply. Visit  www.giftofcollege.com for more information. ↩︎
4. Grandparents must make the five-year election on a federal gift tax return to prorate lump-sum contributions exceeding the annual federal gift tax exclusion amount.  If the contributor dies before the end of the five-year period, the amounts allocated to the years after the contributor’s death will be included in the contributor’s gross estate for tax purposes. Please note that when making a contribution to a 529 account (whether for a single year or using the special election to prorate the gift over five years), all other gifts you make to a particular beneficiary are counted toward determining the available annual gift exclusion amount. Please consult your tax and/or legal advisor for specific guidance before making investment decisions that could affect your taxes or estate or Medicaid planning needs. ↩︎
5. Grants for Maine residents are linked to eligible Maine accounts. Upon withdrawal, grants are paid only to institutions of higher education. See Terms and Conditions of Maine Grant Programs for other conditions and restrictions that apply. Grants may lose value. ↩︎
6. Availability of the state tax deduction is subject to federal adjusted gross income limits. See NextGenforME.com/maine-state-tax-deduction/ and consult your tax advisor. ↩︎