Ask Money

College money for nieces

Chris Farrell Sep 8, 2009

Question: My husband and I are looking for ways to help our two nieces (currently ages 1 and 3, and in two different families) with future college expenses. We’d like to contribute $1000/year to each of them and we’re wondering what the best way of doing this is. Should we have a trust set up for each of them? Or is there a better way? Thanks! Valerie, Minneapolis, MN

Answer: That’s a wonderful idea. But there is no reason to go the trust route. The easiest thing to do is find out whether the parents have established a 529 college savings plan. If they have, put the money every year into the account. Contributions into the 529 are with after-tax dollars. The earnings grows tax-deferred and withdrawals are free of federal taxes so long as the money is used for qualified educational expenses. In a majority of states withdrawals also escape state taxes. If they haven’t set one up I would encourage them to do so. They can open up an account in most states for about $25 or so. A good source of information is savingforcollege.com.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.