Funding a Grandchild's Education: 529 Superfunding and Tuition

Paying for a grandchild’s education is one of the few gifts whose value is still visible decades later, and federal tax law treats it with unusual generosity. In a single year you can move a substantial sum out of your estate through a 529 plan, pay a school’s tuition without the payment counting as a gift at all, or do both, provided each step is taken in the right order and on the right form.

What follows explains how those instruments work in 2026, what the One Big Beautiful Bill Act changed, and how an account you own appears on the FAFSA. By the end you should be able to choose a combination for each grandchild and know what to settle in writing first.

A completed gift that you still control

Federal law treats every contribution to a 529 plan, which the tax code calls a qualified tuition program, as a completed gift of a present interest to the beneficiary. That lets the contribution qualify for the annual gift-tax exclusion, $19,000 per recipient for 2026. It also means that, with one exception described below, the account is not included in your gross estate for federal estate tax, even though you remain its owner.

Most completed gifts cost you control. This one does not. You select among the plan’s investment options and, under current law, may change the selection twice per calendar year; you decide when money is withdrawn; and you can name a new beneficiary. The discipline comes from tax. A withdrawal not spent on qualified expenses generally exposes its earnings to income tax and an additional 10% federal tax.

A 529 contribution is not a direct tuition payment and does not qualify for the educational exclusion discussed later. Other gifts to the same grandchild that year count against the same $19,000; our guide to reporting gifts when you help family explains that arithmetic.

Superfunding: five years of exclusions at once

If you contribute more than the annual exclusion to one grandchild’s 529 in a year, you may elect to treat the contribution as made ratably over five years, beginning with that year. At the 2026 exclusion of $19,000, the election covers up to $95,000 per grandchild. Gift splitting is available only for gifts made while spouses are married to one another, so a contribution you make after your spouse’s death uses only your own five annual exclusions.

The Form 709 instructions set out the mechanics:

1. Elect on Form 709 for the year of the contribution by checking the box on line B of Schedule A and attaching the required explanation. For a 2026 contribution, the return is generally due April 15, 2027.
2. Report any amount above the elected $95,000 as a gift in the year you make it.
3. Report one-fifth of the elected amount in each of the five years, generally in Part 2 of Schedule A for a grandchild.
4. In each of the later four years, file only if other gifts require a return on their own.

Three consequences belong in your file. An election for the full $95,000 uses that grandchild’s annual exclusion for all five years, so further gifts to the same grandchild in the period will generally draw on the lifetime exemption discussed in the $15 million exemption and the surviving spouse. If you die before the five years end, the portion allocable to the years after your death is included in your gross estate. And a gift to a grandchild whose parent is living is generally a generation-skipping transfer: one fully covered by the annual exclusion escapes that tax, but any excess must be reported and your exemption allocated with care.

What a 529 can pay for from 2026

For college and other postsecondary study, qualified expenses include tuition and fees; required books, supplies, and equipment; computers used primarily by the student; and room and board for a student enrolled at least half-time, within limits the school sets. Up to $10,000 over a beneficiary’s lifetime may repay qualified student loans.

The One Big Beautiful Bill Act, Public Law 119-21, broadened the rules for the years before college. For distributions after July 4, 2025, qualified K-12 expenses include curriculum and instructional materials, online materials, certain outside tutoring, testing and dual-enrollment fees, and educational therapies for students with disabilities, as well as tuition. For taxable years beginning after December 31, 2025, the annual K-12 ceiling across all of a beneficiary’s 529 accounts rose from $10,000 to $20,000. The law also added recognized postsecondary credential programs and made permanent the option to roll 529 money into an ABLE account. At this writing, the IRS’s 529 question-and-answer page still shows the old $10,000 figure; the statute and the SEC’s January 2026 bulletin reflect the change.

State tax is a separate question. Many states offer a deduction or matching grant for contributions, sometimes only through the in-state plan, and treatment of withdrawals varies. Confirm your state’s position before relying on the federal K-12 rule.

Paying tuition directly to the school

The alternative requires no account. Tuition you pay directly to a qualifying educational organization for a grandchild sits outside the gift tax: it is not reported on Form 709, uses none of your annual exclusion, and is not subject to generation-skipping transfer tax. The instructions attach no dollar limit, and the school may be domestic or foreign, a university or a private school with a regular faculty, curriculum, and student body.

A 529 lets you part with the money while keeping the pen; paying the school directly lets you give without the gift ever being counted.

The exclusion is narrow. The payment must go to the institution, not to your grandchild or the parents, and must be for tuition; books, room and board, and similar charges are ordinary gifts. A natural division follows: you pay tuition directly each term, and the 529 carries the costs the exclusion cannot reach. Keep each invoice with its payment confirmation.

How an account you own appears on the FAFSA

Under the FAFSA Simplification Act, beginning with the 2024-25 award year, the federal need analysis no longer counts “money received by or paid on behalf of the student” or the catch-all category of “other untaxed income.” Qualified distributions from a 529 you own are therefore no longer asked about as the student’s untaxed income and, because they are tax-free, do not enter through adjusted gross income.

On the asset side, Federal Student Aid’s handbook treats a 529’s balance as an asset of its owner: a parent’s account for a dependent student is a parental asset, an independent student’s own account is the student’s, and a student who is the beneficiary but not the owner does not report it as a student asset. An account a grandparent owns is therefore neither. Two cautions remain. The FAFSA governs federal aid, and colleges awarding their own funds treat 529 assets in different ways. And if ownership later passes to your grandchild’s parent, the account becomes a reportable parental asset.

When the money outlasts the need

You can change the beneficiary without income tax to another member of the beneficiary’s family, including a sibling, a first cousin, or the beneficiary’s own child. The gift-tax rules add a condition: moving the account down a generation, from a grandchild to a great-grandchild, is treated as a transfer to which gift and generation-skipping transfer tax can apply. A move between siblings or cousins is not.

A second outlet, available since 2024, is a rollover into a Roth IRA for the beneficiary:

• the 529 account must have been open for more than 15 years;
• contributions from the last five years, and their earnings, are ineligible;
• the money must move by direct trustee-to-trustee transfer to a Roth IRA in the beneficiary’s name;
• each year’s rollover is capped at the beneficiary’s Roth IRA limit, $7,500 for 2026 for someone under 50 according to IRS Publication 590-A, less other IRA contributions that year, and requires taxable compensation at least equal to the amount; and
• the lifetime total is $35,000 per beneficiary.

The ordinary Roth income limits do not reduce the rollover. Because the 15-year clock starts when the account opens, even a modest account opened while a grandchild is young keeps this option in reserve. Neither the statute nor Publication 970 says whether naming a new beneficiary restarts that clock, so if you may change the beneficiary, ask your preparer before counting on the account’s age.

Naming a successor owner

The tax code says little about who controls a 529 after its owner dies; that is chiefly a matter for the plan’s rules, set out in its offering circular. Rather than leave control to those rules and your estate’s administration, name a successor owner on the plan’s own form.

Choose that person as you would a trustee, because a successor owner generally steps into your role, with the same power over withdrawals and beneficiaries. If you name your grandchild’s parent, remember the FAFSA consequence above. If you want a trust to hold the account, ask whether the plan permits it and let your estate attorney coordinate the language. File the designation with your other beneficiary forms, and tell the family what you have arranged; our guide to telling your children what you intend may help.

Questions to settle before you fund an account

1. For each grandchild, which costs will you pay directly as tuition, and which will the 529 carry?
2. Will you make the five-year election, and who will prepare the Form 709?
3. What other gifts to the same grandchild do you expect within the five years?
4. Has your preparer confirmed the generation-skipping transfer tax reporting?
5. Does your state reward contributions, and only through its own plan?
6. What do the offering circular and fee schedule show for a beneficiary of this age?
7. How does each college under consideration treat a grandparent-owned account?
8. Who is your successor owner, and has the plan confirmed the designation in writing?

This article provides general U.S. educational information and is not legal, tax, financial-aid, or investment advice. Confirm current rules with the IRS, the Department of Education, your plan, and a qualified professional who knows your facts.