By Thomas M. Anderson
Kiplinger's Personal Finance
Sunday, September 7, 2008
Finally, a birthday gift that's fiscally responsible. Instead of giving children more toys, DVDs or video games, family members and friends can easily contribute toward a child's college kitty.
State-sponsored 529 plans are the best way to save for college. Not only does your money grow tax-deferred, but distributions escape taxes altogether if they're used for qualified educational expenses. About two-thirds of states offer plans that also deliver a state income-tax deduction or other tax benefits for contributions.
Until now, however, contributing to a 529 plan has been inconvenient if you are not the account owner. Donors usually have to fill out long forms and mail in the paperwork with their contributions. But that's changing. Upromise, a 529-plan administrator, has streamlined the process through its Ugift program.
Its Web site, http://www.upromise.com, lets account owners invite relatives and friends to contribute free of charge to a 529 plan for birthdays, holidays and other events.
You can fill out the forms online and print a coupon that you mail with your check. So far, the Ugift option is available in five 529 plans sponsored by four states: Arkansas, Idaho, Missouri and Nevada. Upromise intends to roll out the program to all 11 of the plans it runs.
Response to Ugift invitations has been impressive. Since the site launched in November, more than 5,550 posted events had raked in $730,800 as of July 1. The average gift is $50, but you can give as little as $15. One generous contributor cut a $50,000 check for a 529-plan beneficiary.
Similar sites are starting to appear. FreshmanFund.com, a start-up, lets parents and other account owners ask donors to contribute online to any 529 plan, not just those run by a particular administrator. There's no fee, but the company eventually wants to sell 529 plans and other products to users. If the college-contribution-as-gift trend takes off, birthday parties may never be the same.