What are my options to save for my children’s education?
Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management
- Many educational opportunities come with hefty price tags, but there are plenty of ways you can save for your family’s future.
- Some education savings options include prepaid tuition plans, 529 plans, custodial accounts and various types of trusts.
- Assets owned by children, like money in a custodial account, could affect their eligibility for need-based financial aid.
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 2026, you can give each child up to $19,000 per year (or $38,000 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 $19,000 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.
As of December 2025, FAFSA does 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 professionals, a J.P. Morgan advisor can help you evaluate the choices available and determine which strategies make sense for your individual situation.
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Education planning options
Crummey trust | UTMA/UGMA (custodial) account | 529 plan | Minority trust |
|---|---|---|---|
Description | |||
Allows gifts to qualify for the annual gift tax exclusion while limiting access to funds; assets are managed by a trustee and do not have to be used for education expenses | Managed by an adult custodian until the beneficiary reaches the age of majority; assets do not have to be used for education expenses | Assets grow on tax-deferred basis but are restricted to qualified education expenses; any other withdrawals are subject to income tax at ordinary rates plus a 10% penalty | Managed by a trustee until the beneficiary reaches the age of majority; assets do not have to be used for education expenses |
Withdrawals | |||
Beneficiaries of a Crummey trust have a limited window – typically 30 to 45 days after a contribution is made – to withdraw those contributions, after which the right to withdraw expires and the funds remain in the trust; parents can withdraw assets on a minor’s behalf during this window | Beneficiaries gain full access to the account at adulthood; any withdrawals made before this point must be used for the minor’s benefit | Any assets used for qualified education expenses can be withdrawn taxfree | Beneficiaries gain full access to the trust at adulthood; any withdrawals before this point must be used for the minor’s benefit |
Limitations | |||
Requires grantor to send written notice of contributions in order to maintain tax benefits | Can reduce eligibility for need-based financial aid | Less flexible than other savings options due to the penalty on non-education expenses | Grantor has less long-term control compared to Crummey trust |
Crummey trust
A Crummey trust is a type of irrevocable trust designed to allow gifts made to the trust to qualify for the annual gift tax exclusion, even though the beneficiary’s access to the funds is limited. Here’s how it works:
- 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
UTMA and UGMA accounts derive their names from the Uniform Transfers to Minors Act and the Uniform Gifts to Minors Act. These two laws enable adults to give assets to a child through a custodial account that the child will gain access to as an adult, allowing the funds to be used for college education and other expenses. When choosing a custodial account, here are some things to keep in mind:
- 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
A 529 plan is an investment account designed to help guardians save for a child’s education. Think of a 529 savings plan as similar to a Roth IRA: Both are used to grow money tax-free for a specific purpose. In fact, the Secure 2.0 Act allows for up to $35,000 of unused 529 funds to be rolled over into a Roth IRA without taxes or penalties if certain requirements are met. Here’s what you should know before opening a 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.
- 529 plans can only be used for qualified expenses for college and post-graduate education (any amount), and K–12 education (up to $20,000 per year per child).
- 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
Minority trusts are another type of trust that can be used to save for a child’s education. Unlike Crummey trusts, minority trusts require that the beneficiary be granted full access to the account at the age of majority. Key characteristics of a minority trust include:
- 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).
The bottom line
As you can see, there are different options available when it comes to planning for education costs for your loved ones. The most suitable option for you and your family – whether it’s making payments directly to the educational institution, setting up a 529 or UTMA account, or using a combination of these approaches – depends on your unique situation and goals.
Your education funding choices can have a significant impact on your taxes and estate plan. With this in mind, you may want to seek guidance from professionals who can help you develop a plan to assist with your family's educational goals and financial future for generations to come.
As always, reach out to a J.P. Morgan advisor with questions.
Frequently asked questions about saving for your child’s education
A 529 plan is an account designed to cover educational costs that comes with certain tax advantages. When you contribute to a 529 college savings plan, the assets can grow on a tax-deferred basis, and withdrawals are tax-free provided you use the funds to pay for qualified education expenses.
While some education savings vehicles may have different rules, there are no restrictions on who can contribute to a 529 plan, allowing grandparents, other relatives and friends to help fund your children’s education. Gift tax rules may apply, but high annual and lifetime exemptions mean gift taxes become an issue only for large contributions.
Investing for education requires strategic choices based on your personal situation and preferences. Once you’ve set up an account to save for education – hopefully one that provides tax advantages – you’ll likely have to decide how to invest the funds. Like any investment, it’s worth considering your risk tolerance and time horizon. When it comes to college savings, a good rule of thumb is to allocate more to high-risk, high-reward assets when the prospective student’s freshman year is further in the future. Then you might shift to more conservative, income-generating assets as college age approaches.
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Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management
