As college costs continue to rise, you may be concerned about how to save and pay for it. Tax-favored strategies may be available. For example, you can contribute to a 529 plan set up to meet a child’s or grandchild’s education expenses. Contributions aren’t deductible but earnings accumulate tax-free. Contributions are taxable gifts to the child and are eligible for the $19,000 gift tax exclusion in 2025. By taking advantage of a five-year gift tax election, a grandparent can contribute up to $95,000 ($19,000 × 5) per beneficiary this year, free of gift tax. Distributions of earnings that aren’t used for qualified expenses are subject to income tax plus a 10% penalty. Other rules apply.
