The holiday season is here, and so is the deadline for gifting contributions to 529 accounts — an attractive opportunity for those wanting to ease the soaring cost of college for family members.

December 31 is your last chance to contribute to a 529 account for your kids’ or grandkids’ education. Despite the benefits, industry data suggest that these investment vehicles are underused. There are 12.7 million accounts, but the average account balance is just under $21,000, according to the College Savings Plans Network. That’s less than one year of tuition at most public universities. And, it’s a missed opportunity, because these accounts offer a flexible, tax-efficient way to pay for a college education.

You can set up multiple 529 accounts to cover different children or grandchildren, and an individual can be named as a beneficiary on more than one account, so a parent and a grandparent can set up separate accounts for the same future student. No matter how a 529 account is established, it offers significant benefits for both owners and beneficiaries.

Perks for 529 gift givers

There are several tax and estate-planning advantages for 529 accounts that put owners in the driver’s seat of their investment. The tax code considers an investment in a 529 to be a gift to the designated beneficiary on the account, even though it remains under the control of the account owner.

“The tax code deems investments put in a 529 to be a gift to the designated beneficiary — even though it’s not really a gift because the money remains under the control of the account owner.”

Chris Stack, SavingforCollege.com

This means that money put into the account will fall under the annual gift tax exclusion of $14,000 from an individual, or $28,000 from a married couple. However, under the unique rules for 529 accounts, you can simultaneously access four future years of the annual exclusion, for an extra $70,000, or $140,000 for joint filers. Each person also has a unified lifetime credit of $5.45 million, which can be used as well, to supplement the annual exclusion or avoid paying gift tax on amounts above $14,000.

Also, under the tax code, any money put into these accounts is treated as a completed gift and is excluded from the account owner’s taxable estate while remaining in the account owner’s full control, making these accounts truly unique.

The beneficiary designated on the account can also be switched at any time without any fees or tax implications for the account owner, who can name another family member or even themselves as the beneficiary.

Favorable options for owners and beneficiaries

A less tangible advantage of 529 plans is the comfort of knowing that money has been saved and invested to help pay for the college years. Beyond that, money in these accounts enjoys tax-free compounding, and the account holder can spend such earnings free of federal and state taxes, as long as the money is spent on education.

The funds don’t even have to go toward a regular undergraduate degree. They can be used to pay for vocational and trade schools or for post-graduate education. And ultimately, the money doesn’t even have to be spent on education at all. If the account owner decides against putting the money toward such costs, it can be withdrawn and spent on other things, although they will be required to pay taxes on the amount withdrawn at their ordinary income tax rate along with an additional penalty of 10%.

Bottom line

There are some important, time-sensitive considerations to bear in mind when setting up and contributing to a 529 account. Perhaps most importantly, most states that offer tax deductions require the funds to be paid into the account by December 31 to benefit from the tax advantages for any given year. So, as 2016 comes to a close, remember that now is the time to give.

The ABC’s of Accelerated Gifting

This powerful strategy could significantly lower your taxable estate and help loved ones reach their education goals faster.

529 Gifting

529 Gifting

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Article by Columbia Threadneedle Investment