How Do I Set Up a 529 College Savings Account for My Grandchild?

As college costs continue to rise, many grandparents are stepping in to help their grandchildren foot the bill.

In 2025, the average cost of tuition, room and board for a four-year, in-state public university was nearly $26,000. The average tuition, room and board for a private, nonprofit college or university was more than $60,000.

Those are sticker prices, though. Thanks to financial aid, many families pay less. But there’s no question that the cost of college represents a major financial burden for many parents of college-bound children. For that reason, contributing to a grandchild’s college education is one of the best gifts you can give. One way to do it is through a 529 plan.

A 529 college savings plan is a tax-advantaged account designed to help parents, grandparents and others save for college, graduate school and trade school. Some states also allow the money to be used to fund a portion of a child’s K-12 private school tuition. Money invested in a 529 plan grows tax-deferred, and withdrawals are tax-free as long as the funds are used for qualified educational expenses, such as tuition and fees, textbooks and room and board.

Dollars and Sense

Longtime personal finance journalist Sandra Block answers your questions on saving for retirement, paying off debt and living a frugal yet full life.

Have a money question? Email us at dollarsandsense@aarp.org

Every state and the District of Columbia offers at least one 529 plan, except for Wyoming, which partners with other states so that residents can take advantage of these plans. You are not required to invest in your home state’s plan, but many states do offer tax deductions or credits to residents.

There are generally two ways to contribute to a child’s college education through a 529 plan: 

• Contribute to a parent-owned 529 plan. If your grandchild’s parents already have a 529 plan established, you can contribute to that account on birthdays, holidays or whenever you have extra cash to give. Many plans have digital gifting platforms that allow family and friends to make online contributions.
• Set up your own 529 plan with your grandchild as the beneficiary. You don’t need a lot of money to create a plan. Minimum investments tend to be low, oftentimes $5, $15 or $25.

In addition to taking advantage of state tax breaks, which I’ll discuss below, setting up your own 529 plan will allow you to maintain control over the account. If your grandchild receives enough financial aid to cover the cost or decides not to attend college, you can change the beneficiary to another family member. You can even name yourself or your spouse as the beneficiary and use the money to go back to school. And if you need the money for noneducational purposes — an emergency health care expense, for example — you can take withdrawals from the account, although you’ll have to pay taxes on the earnings, plus a 10 percent withdrawal penalty.