books inside of a piggy bank


Adam Frank

Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management


Planning early for your children’s and grandchildren’s education can help you cover these expenses in a tax-efficient manner.

Options to save for a child’s education

A range of choices gives you great flexibility as you save for a child’s or grandchild’s education.

In 2024 you can give each beneficiary up to $18,000 per year (or $36,000 for married couples) without paying gift tax or using any portion of your lifetime exemption. This amount is known as the annual gift tax exclusion. This is the case no matter how you make the gift. It can be directly to the beneficiary, in a custodial account or “minority trust” if the beneficiary is a minor, in a “Crummey” trust, or using a 529 college savings plan (more details below).

Tuition payments made directly to an educational institution are not subject to gift tax, will not use any of your lifetime gift tax exemption, and will not use up any of the $18,000 annual exclusion from gift tax.

Prepaying tuition

Many K–12 private schools, and some colleges and universities, allow parents and grandparents to prepay tuition. This is especially useful for grandparents who wish to fund their grandchildren’s education but are concerned they may not live long enough to do so. Note that if a student changes schools, the prepaid tuition could be lost.

Assessing the impact on financial aid

Assets owned by a child, such as custodial accounts, will reduce eligibility for need-based financial aid more than assets owned by a parent. Assets owned by a grandparent or trust may not be counted at all.

Income of a child generally will have the biggest impact on the child’s eligibility for need-based financial aid. Distributions from trusts are usually treated as the child’s income, even if payments are made directly to the school. The new FAFSA released in December 2023 for the 2024-25 school year will not ask about distributions from grandparent-owned 529 accounts, which therefore should not count against the student for financial aid purposes. Still, you should review the FAFSA carefully and work with a financial aid consultant or other professional to confirm that distributions from a grandparent-owned 529 account won’t affect the student’s financial aid.

Working with your tax and legal advisors, a J.P. Morgan representative can help you evaluate the choices available and determine which strategies make sense for your individual situation.

Education planning options

Crummey trust

  • The beneficiary has a right to withdraw annual contributions for a period of time, usually 30 or 45 days (a “Crummey” power); notice of contributions must be given to the beneficiary in writing.
  • Other than the Crummey power, there is no requirement that the beneficiary should be permitted to withdraw trust assets.
  • The Crummey power is usually exercisable by the beneficiary’s parents as long as the beneficiary is a minor.
  • If the beneficiary does not exercise his or her Crummey power, the assets remain in the trust irrevocably and are invested and distributed according to the trust’s terms.

UTMA or UGMA (custodial) account

  • Assets are given irrevocably to a minor, but an adult custodian retains control until the minor reaches age 18 or 21 (or, in some states in certain circumstances, 25).
  • The minor takes over control of the account – and whatever is in it – when he or she reaches the age of majority.
  • There can be legal restrictions on investments within these accounts.
  • If anyone who contributes to an UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Acts) account also acts as its custodian, all, or a portion of that account generally will be included in the custodian’s taxable estate. For this reason, a parent should generally not act as custodian of UTMA or UGMA accounts created for his or her children if estate tax is a concern.

529 plan

  • Assets are contributed to a 529 plan. The contributor usually stays in charge of investments and distributions as the account owner.
  • Some states give contributors a state income tax deduction for 529 contributions.
  • Investments in a 529 plan grow income tax free, and if a withdrawal is used for qualified education expenses, it will not be taxable.1
  • 529 plans can only be used for qualified expenses for college and post-graduate education (any amount), and K–12 education (up to $10,000 per year per child).2
  • If a withdrawal is made for non-educational purposes, the income allocated to the withdrawal is subject to income tax at ordinary rates plus a 10% penalty.

Minority trust

  • The minor must have a right to demand trust assets when he or she reaches age 21 (or the assets and income must pass to his or her estate if he or she dies prior to reaching age 21).
  • If the minor does not exercise this right, the assets can remain in trust to be invested and distributed according to the trust’s terms.
  • Trust assets must be usable only by the minor or for the minor’s benefit during minority.
  • Minority trusts are created in accordance with Internal Revenue Code Section 2503(c).



Withdrawals made to pay for qualified K–12 education expenses may have negative state income tax consequences. Consult with tax counsel before using funds to cover these expenses.


Withdrawals made to pay for qualified K–12 education expenses may have negative state income tax consequences. Consult with tax counsel before using funds to cover these expenses.

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Depending upon the laws of the home state of the customer or designated beneficiary, favorable state tax treatment or other benefits offered by such home state for investing in 529 Plans may be available only if the customer invests in the home state‘s 529 Plan. Any state-based benefit offered with respect to a particular 529 Plan should be one of many appropriately weighted factors to be considered in making an investment decision; and you should consult with your financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances.

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