At a glance
- Nine more income-tax states offer tax parity, letting grandparents potentially claim a deduction for contributions to another state's plan.
- FAFSA no longer counts college withdrawals from a grandparent-owned 529 as the grandchild's untaxed income.
- The client's state of residence decides which generation can claim the state tax deduction and whether contributing to a parent-owned plan forfeits it.
Grandparent-owned 529 accounts can capture a state tax credit or deduction in 27 states with income taxes, according to WealthManagement.com. Nine more income-tax states offer tax parity, letting grandparents potentially claim a deduction for contributions to another state's plan.
FAFSA no longer counts college withdrawals from a grandparent-owned 529 as the grandchild's untaxed income. New York, Massachusetts, Rhode Island and Montana are among a handful of states that limit the state deduction to the registered owner or spouse, so a grandparent's check into a parent-owned account can leave the grandparent, and often the parent, unable to claim it. Contributions are completed gifts removed from the grandparent's taxable estate, and five years of the $20,000 annual federal gift tax exclusion for 2027 can be front-loaded, up to $100,000 per grandchild in one year.
The client's state of residence decides which generation can claim the state tax deduction and whether contributing to a parent-owned plan forfeits it.
Reported by the Tax & estate planning desk from WealthManagement.com. Published . Corrections