How to Start a 529 Plan for Someone Else (Simple Guide)

Picture this: you run a small team, and one employee’s kid just got into a great STEM program. Or you’re a founder who wants to jumpstart a niece’s future.

If you’re asking how to start a 529 plan for someone else, the short answer is simple, you can, and it’s easier than most people think.

A 529 plan is a tax-advantaged account for education costs. Money you put in can grow tax-free, and qualified withdrawals for tuition, books, and other costs are tax-free.

You can open one for another person, even if you’re not related, which the IRS allows.

Why does this matter for busy founders and small business owners? It’s a smart, high-impact gift that compounds over time. It’s also flexible.

If plans change, the beneficiary can be switched to another qualified family member, and many programs offer simple gifting tools so others can contribute.

You’ll pick a state plan, name the beneficiary, and choose an investment option, usually an age-based portfolio or a simple index mix.

Setup takes minutes online, and you can fund it with a one-time gift or small auto deposits. For many readers, this fits cleanly into a personal giving strategy or a company-led education perk.

This guide will show you how to start a 529 plan for someone else, what to watch for with taxes and fees, and how to pick the right options without overthinking it.

If your goal is to make a difference that lasts, this is a clear, cost-effective way to do it. Read our article on 529 plan strategies for 2025: smart moves for busy founders, to compare details.

What Is a 529 Plan and Why Start One for Someone Else?

A 529 plan is a tax-advantaged account that helps pay for education. If you’re exploring how to start a 529 plan for someone else, you can open and fund it for a child, employee’s kid, niece, or anyone you want to support.

It fits busy founders and small business owners who want a high-impact gift that grows over time. You stay in control while giving someone a real head start.

Key Benefits of Gifting Through a 529 Plan

Here’s why a 529 is a smart way to gift education, especially if you want a simple, cost-effective legacy play.

• Tax advantages: Earnings grow tax-deferred, and qualified withdrawals are tax-free. With college costs averaging $11,610 for in-state public and $43,350 for private schools in 2024–2025, tax-free growth is a powerful benefit

• You control the account: As the owner, you manage investments and withdrawals. The beneficiary has no legal claim to the funds, allowing you to gift responsibly

• Flexible beneficiary changes: If plans shift, you can transfer the account to another qualifying family member, keeping the funds useful across siblings and cousins

• Covers more than college: Eligible expenses include K–12 tuition (within state limits), trade schools, books, computers, and other qualified education costs

• Fits small business legacy goals: Begin with automatic deposits, invite family contributions during birthdays, and simplify gifting. It’s a practical way to support your team or family without extra admin work

How to Open a 529 Plan for Another Person

If you want a clear path for how to start a 529 plan for someone else, think of it like opening a simple investment account with a tax edge.

You choose a state plan, name the beneficiary, pick an investment option, then fund it. The keys are picking a solid plan, completing the application with the right info, and setting a simple funding routine.

Choosing the Best 529 Plan for Your Situation

Start with fit, not geography. You can open most state 529 plans even if you do not live there, which gives you flexibility.

• Your state’s tax break: Some states offer a deduction or credit for contributions if you use their plan. Check your state first, then compare the benefit to any fee or investment trade-offs

• Low fees: Favor plans with low expense ratios and minimal program fees. A small percentage difference compounds over time

• Simple, strong investment menus: Look for age-based or target-date options, broad index funds, and clear risk choices

Use comparison tools to make the short list fast. The Saving for College plan comparator is popular for side-by-side fees, investment options, and state tax rules.

For hands-off investors, plans from Vanguard-administered states or Fidelity-sponsored plans are known for low costs and straightforward choices.

Quick rule of thumb:

• If your state offers a solid tax break, consider its plan first

• If it does not, focus on low fees and simple index or target-date options, even if the best plan is in another state

Gathering Information and Completing the Application

You can open the account as the owner and name the other person as the beneficiary. The process is quick and online.

Gather these before you start:

• Your info: Legal name, address, date of birth, Social Security number, and a valid government-issued ID

• Beneficiary’s info: Full legal name, date of birth, and Social Security number. If you don’t have the SSN, get permission and request it securely

• Bank details: Routing and account numbers for funding the account or receiving transfers

Plan on 15 to 30 minutes to complete the online form. You will set the account owner, add the beneficiary, choose investments, and pick how to fund.

Privacy matters. The beneficiary does not need to know upfront for you to open the plan, and they will not have control over the funds.

Protect sensitive data, avoid sharing SSNs by email, and store documents in a secure password manager. Explore our latest guide on Does ETRADE Have a 529 Plan? 2025 Guide for Business Owners for broader view.

Selecting Investments and Funding Your Account

Most investors keep it simple. Target-date or age-based portfolios automatically shift from stocks to bonds as the child gets older.

If you prefer control, pick a broad stock index fund plus a bond fund, then rebalance once a year.

Funding is straightforward:

• Link your bank: Add your checking or savings account to enable smooth transfers into the 529 plan

• Set up auto-deposits: Monthly or quarterly contributions build steady momentum and reduce the need for manual effort

• Start small: Many plans have low or no minimums. Even $25 to $50 a month can grow significantly over time through consistency and compounding

Example: Choose an age-based portfolio in a low-cost Fidelity or Vanguard-administered plan, set a 50 dollar monthly auto-transfer, then increase by 10 percent each year. You will stay consistent without extra work.

That is how to start a 529 plan for someone else without overthinking it. Pick a low-fee plan, complete the short application, choose a simple investment, then automate deposits.

Common Questions and Tips for Managing a 529 Plan

If you are figuring out how to start a 529 plan for someone else, you also need to know how to use it wisely after it is open.

The rules are friendly once you know them, and a few smart moves can save taxes and headaches. Use this quick guide to keep your plan efficient and flexible over time.

 A small business owner reviewing 529 plan tax rules and qualified expenses in a clean home office. Image created with AI.

Understanding Tax Rules and Qualified Expenses

529 funds get their power from tax-free growth and tax-free withdrawals for qualified education expenses. Spend within the rules, and you keep more of your money working for the student.

Qualified uses include:

• Tuition and mandatory fees for college and eligible trade schools

• Books, supplies, and required equipment, including a computer if needed for enrollment

• Room and board for students enrolled at least half-time, within the school’s published cost of attendance

• K–12 tuition, up to $10,000 per year per student

Good to know:

• Non-qualified withdrawals: Only the earnings portion is taxed as ordinary income, plus a 10% federal penalty

• Scholarship exception: If the student receives a scholarship, you can withdraw up to that amount without the 10% penalty, though earnings are still taxed

• State benefits vary: Some states offer contribution deductions or credits, while others do not. Your state may claw back prior deductions if you roll to another state’s plan, so check the rules before moving money

Practical tip: Match your withdrawal to actual qualified costs in the same calendar year. Keep receipts and the school’s cost-of-attendance page in a folder for clean records.

What to Do If the Beneficiary’s Plans Change

Plans change, and a 529 gives you options so the money stays useful. You are not locked in to one person or one path.

Here are your flexible paths:

• Change the beneficiary: Switch to another qualifying family member at any time without tax consequences. This includes siblings, step-siblings, cousins, parents, or even yourself if you go back to school

• Rollover to another 529: Move funds to a 529 for a different family member. You can do a rollover once every 12 months for the same beneficiary, or opt for a direct trustee-to-trustee transfer when changing the beneficiary

• Scholarship withdrawal: If the student receives a scholarship, you can withdraw up to that amount penalty-free. However, the earnings portion is still subject to income tax

• Roth IRA rollover option: If the account has been open for 15 years, you may be able to roll over leftover funds to the beneficiary’s Roth IRA, subject to annual IRA limits and a $35,000 lifetime cap. This can turn unused education savings into a head start on retirement

Why this matters: When you are thinking about how to start a 529 plan for someone else, flexibility reduces risk. If the original student does not use it all, the funds can support a sibling or even future training for the same person.

Conclusion

If you have wondered how to start a 529 plan for someone else, the steps are simple and effective. Choose a solid state plan, apply online with the right details, fund it on autopilot, and enjoy the tax perks as the money grows.

You keep control, the beneficiary gains opportunity, and your gift compounds quietly in the background.

For busy founders and small business owners, this is a high-impact move with low effort. Start with 25 to 50 dollars a month, then nudge it up each year.

Small, steady deposits today can cover big education costs tomorrow.

Ready to act? Visit your state’s 529 website or talk with a fiduciary advisor now. Set up the account, pick an age-based portfolio or simple index mix, and turn on monthly contributions.

Your future self, and the student you support, will thank you.

One takeaway to remember, starting small today grows big for education tomorrow. What will you set in motion this week? Get a quick insight on 529 plan through 529 Plan Tax Deferred: Rules, Limits, and Smart Moves.