Chase Private Client | Our Thinking | Funding an Education: What Plan Is Right for You?

Our Thinking

Funding an Education: What Plan Is Right for You?

Funding an Education:  What Plan Is Right for You?
Back-up plan
Tax efficient
Early IRA withdrawals
Who chooses this option?



Many clients are strongly committed to funding their grandchildren’s educations. For this reason, we often see grandparents pay their grandchildren’s tuition costs directly, starting as early as pre-school.


Because these payments are not taxable gifts and do not count toward the grandparents’ annual exclusion amounts,4 these grandparents regularly make annual exclusion gifts at the same time to their grandchildren’s 529 accounts. The funds in these accounts can be used in the future to defray college and/or graduate school expenses. As of 2018, tax law also allows for 529 funds to be used to pay for up to $10,000 per year in K-12 tuition.


In this way, older grandparents can be certain of contributing meaningfully to their grandchildren’s entire educational careers, even if they are not alive when the time comes to pay for college or graduate school.

Save now for later
529 Plan Account
Quick overview
Income tax savings
Beneficiary changes
Who chooses this option?



A couple with a large family could easily move a great deal of wealth down one or more generations—and ensure that the funds will be used for education—by frontloading five years of annual exclusion gifts into 529 accounts in a single year.


Let’s say a couple has six grandchildren. They could move an aggregate amount of $900,000 into six 529 accounts in a single year ($15,000 annual exclusion x 2 donors x 6 grandchildren x 5 years).

UTMA Account
Who uses this option?



One couple decided to pay for their daughter’s education out-of-pocket, but created an UTMA account for her as a tool to help teach her about finance. They opened the account when she was 10 years old and used their gift tax annual exclusion amounts to fund the account every year. They stopped contributing when the account was worth $200,000. An aunt agreed to act as custodian and to meet with the girl regularly to discuss how she was investing the account’s funds.

Pros and cons at-a-glance

Pros and Cons of Education Funding Options


Quick Comparisons of the Options

Quick Comparisons of the Options
An ideal combination
2 Grandparents
PAYING CURRENT COSTS Fund private tuition bills directly (these are non-taxable gifts), starting when each student enters pre-school.
SAVING FOR FUTURE COSTS – Make annual exclusion gifts each year to 529 plan accounts established for each of the three children.
2 Parents



Investing involves market risk, including the possible loss of principal. Investments in international or emerging markets can be more volatile and involve a greater degree of risk. Not all investments or strategies are suitable for all investors and there is no guarantee that a particular investment objective will be achieved.

Past performance is not a guarantee of future results.

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.

The information within this document is being provided for informational and educational purposes only. It is not intended to provide specific advice or recommendations for any individual. You should carefully consider your needs and objectives before making any decisions. For specific guidance on how this information should be applied to your situation, you should consult the appropriate financial professional.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

Investment products and services are offered through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMS, CIA and JPMorgan Chase Bank, N.A. are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

© 2019 JPMorgan Chase & Co.


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