Helping a child or grandchild with education is one of the most meaningful financial gifts many families want to make. The question is rarely if you want to help—it is how to do it in a way that is flexible, tax‑aware, and aligned with how you hope the money will be used.

Two of the most common tools we see for education‑focused giving are UTMA custodial accounts and 529 college savings plans. On top of that, there are special gifting rules around how much you can contribute and how those contributions are treated, especially for grandparents.

This article walks through the basics of each approach so you can start thinking about what is right for your family.

UTMA accounts: flexible, but owned by the child

A UTMA (Uniform Transfers to Minors Act) account is an investment account set up for a minor child, with an adult custodian managing it for the child’s benefit.

Key features:

• The minor is the legal owner of the account from the beginning.
• An adult custodian is named to manage the account and make decisions until the child comes of age (typically between 18 and 21, depending on the state).
• When the child reaches that age, the custodian drops off and the child gains full control of the account.

Once money goes into a UTMA, it belongs to the child. The custodian is obligated to use the funds for that child’s benefit and can withdraw money at any time for that purpose. That could mean education expenses, a first car, summer camp, a study‑abroad program, or even help with a down payment on a home.

Unlike a simple savings account, a UTMA can hold investments such as stocks, mutual funds, and exchanged traded funds (ETFs), which provide higher growth potential versus savings accounts but also investment and market risks to the value of the money..

From a tax perspective, a UTMA works like any other taxable investment account:

• It does not grow tax‑free, and investment income is taxed in the year it is received.
• When investments are sold for a gain, capital gains taxes may apply.

It is also important to understand how UTMAs are treated in college financial aid formulas. An UTMA is considered an asset of the child, and assets owned by the student are typically weighted more heavily than assets owned by parents or grandparents. That means:

• A large UTMA balance can reduce eligibility for need‑ or asset‑based financial aid, because it looks like the student has more of their own resources to draw on.

For some families, that is not a concern—they intend to pay for school regardless of aid. For others, it is a reason to be cautious about building large UTMA balances for college‑bound children.

Finally, when a child “comes of age” and gains control, they can decide how to use the money. If you funded the UTMA, imagining it would help with tuition, but at 19 your child decides to spend it on travel or a car, there may not be an easy way to prevent that. That loss of control at adulthood is a key difference from 529 plans.

529 accounts: education‑focused and tax‑advantaged

A 529 plan is a tax‑advantaged account specifically designed to help pay for education. These plans are set up by individual states and each state has at least one plan. One of the most common questions we received about them is:

• If I set up one in my state, can it be used to fund college if the beneficiary goes to school in a different state?
  
  The answer is, “YES.” Any 529 account can be used regardless of where the beneficiary attends school. There may be a state tax deduction available, however, if one contributes money in their state’s plan, so it’s a good idea to consult your tax professional.

With a 529, the adult owner controls the account and makes all investment and withdrawal decisions. The owner can usually change the beneficiary to another family member if needed, and the account does not automatically pass into the beneficiary’s control at a certain age. That structure provides more long‑term control for the adult compared with an UTMA, where control eventually transfers to the child.

529 money must be used for education, but education is now defined broadly. Historically, that meant tuition, fees, books, and certain living costs for college. Today, in many cases, 529 funds can also be used for qualified K–12 tuition at private schools. Under relatively new rules, in some situations, if a beneficiary has finished their education, a portion of unused 529 funds may also be eligible to be rolled into a Roth IRA for that beneficiary, subject to specific conditions and limits. That creates a potential bridge from education savings to long‑term retirement savings.

The tax treatment is one of the biggest advantages. Contributions are made with after‑tax dollars, but the investments can grow tax‑free, and if withdrawals are used for qualified education expenses, the earnings can usually be withdrawn without income tax. 

529s can be opened by any adult; they do not have to be established by a parent or even a relative. Grandparents, aunts and uncles, and family friends can all open and fund 529s if that fits the family’s planning.

From a financial aid standpoint, a 529 that is owned by a parent is generally treated as a parent asset, rather than a student asset. It still counts in the formula, but typically has a smaller impact on need‑based aid than a child‑owned account such as a UTMA.

Annual exclusion gifts and “superfunding” 529s

If you are giving money for education, it helps to understand the annual gift tax exclusion and how it works with 529s.

Under current rules (the dollar amounts adjust over time), any person can give up to a certain amount per year—for example, $19,000 in 2026—to any other person without needing to file a gift tax return. If you are married, you can make a split gift, where each spouse gives that annual exclusion amount to the same individual.

529 plans include a special feature that allows you to front‑load several years of gifts at once. In practice, that means you can contribute up to the equivalent of five years’ worth of annual exclusion gifts to a 529 for one beneficiary in a single year and elect to treat that contribution as though it were made evenly over five years. In the example 2026, that might look like up to $95,000 from one individual or $190,000 from a couple going into a single beneficiary’s 529, without triggering gift tax. This “superfunding” strategy can be especially helpful if you want the funds to have more time to grow before the child reaches college age or if you are using 529 contributions as part of a broader estate plan.

Paying the school directly: a powerful option for grandparents

If a child is already in college and there is no 529 in place—or if a grandparent simply wants to help in real time—there is another useful gifting rule.

When a grandparent (or anyone else) pays tuition or certain qualifying educational expenses directly to the school, that payment:

• does not count toward the annual gift tax exclusion, and
• is generally considered unlimited and not subject to gift tax.

For example, if a grandparent wants to pay $50,000 toward a grandchild’s tuition and writes the check directly to the college, that $50,000 does not use up any part of the $19,000 annual exclusion they could otherwise give directly to that grandchild. If instead they gave the grandchild $50,000 and the student then paid the school, that would typically be treated as a gift to the child.

It is important to note that this kind of direct‑to‑school gifting generally has to be done with cash, not with securities or stock transfers. You cannot, for instance, pay tuition with shares of stock in a child’s name and treat that as a direct tuition payment.

Choosing the right approach for your family

There is no single “best” way to help a loved one with education costs. The right approach depends on how much control you want to maintain over how the money is used, whether flexibility for non‑education purposes is important, how concerned you are about financial aid eligibility, and how much and how quickly you plan to give.

Very broadly:

• A UTMA may fit when you want broad flexibility for a child’s future, are comfortable with the child ultimately having full control at adulthood, and are less focused on the financial aid impact.
• A 529 is typically better suited when you want to prioritize education, take advantage of tax‑advantaged growth, maintain adult control, and potentially reduce the impact on need‑based aid.

Because these decisions touch taxes, financial aid, and family dynamics, they are rarely one‑size‑fits‑all.

At On Purpose Financial, we help families evaluate these options in the context of their larger financial and estate plans. We also encourage you to involve your tax professional when you are considering larger gifts or “superfunding” strategies.

If you are considering a UTMA, a 529, or direct tuition payments and want help deciding what is best for you and your loved ones, you can start a conversation with our team at onpurposefinancial.com.

Disclaimer: Material Prepared by Tic Tac Toe Marketing, an independent third party. Any opinions are those of the author, are subject to change without notice and are not necessarily those of Raymond James. This material is being provided for information purposes only and does not purport to be a complete description of the securities, markets, or developments referred to in this material and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax or legal issues, these matters should be discussed with the appropriate professional.

Tax laws and provisions may change at any time. Death of a contributor prior to the end of the five-year period may result in a portion of the contribution to be included in the contributor’s estate.