College Planning

Tax-Advantaged Ways for Grandparents to Help Pay for College

Grandparents who want to help grandchildren attend college have lots of options. But a few may be more beneficial for both the grandparents and the student - especially when it comes to financial aid.

4 Tax-Beneficial Ways Grandparents Can Gift Money for College

Some grandparents want to be generous when it comes to all things grandchildren related. But when it comes to assisting your grandchild with the costs of higher education, that generosity may actually have an adverse effect on how much financial aid your grandchild is offered to cover the rest of his or her expenses.

When it comes to gifting money for college, you may not be privy to all the same tax breaks that parents may receive when it comes to saving for a child's education - unless your grandchild is also your dependent. With these factors in mind, we've put together a few smart, tax-beneficial suggestions for gifting money for college and saving for your grandchild's education.

Start a 529 college savings plan.

A 529 college savings plan is a safe way to avoid gift tax issues and set aside a sizable amount of money for your grandchild's education. The account's earnings will be tax-free, and withdrawals will not be subject to taxation unless you choose to withdraw the money and use it for something other than qualifying educational expenses. You may also be able to claim your 529 contributions as a deduction on state tax forms, depending on what state you live in.

Transfer your assets to the student's parent instead of the student.

If your grandchild will be dependent on financial aid to attend college, then you should know that when that financial aid package is calculated, the assets of the student are weighed a lot more heavily than the assets of a parent. This is the one caveat of the 529 College Savings Plan, in that all that money you saved for the beneficiary (your grandchild), may work against them, in this one respect. Direct monetary gifts to your grandchild may also count as part of their “untaxed income”. Gifting missteps like these could cost your grandchild thousands in possible financial aid. A better way to go is to transfer your 529s or intended gifts of money for college to the child's parent before it's time to fill out your grandchild's FAFSA.

Pay your grandchild's tuition by making payments directly to the college.

Direct tuition payments (and tuition payments alone, NOT payments for other educational expenses such as room and board and meal plans) are not considered taxable gifts. However, such payments must be made directly to your grandchild's college or university to be exempt. And while these donations are tax exempt, you should note that, just as with 529 plans, these payments can affect your student's eligibility for future financial aid. Again, if your grandchild is dependent on financial aid to cover their educational expenses, it might be more considerate to divide your gift up over several semesters. If you still prefer to contribute one lump sum, simply wait to do so until their senior year.

Assist your grandchild with student loan payments after the fact.

As of 2015, you are allowed to gift your grandchild up to $14,000 a year to help pay down his or her loans (or for any reason) without running into any gift tax issues. If your grandchild is married, you could also gift their spouse an additional $14,000. Be aware that your lifetime gifts to any one individual cannot exceed $5.5 million dollars (as of 2015) without running into gift tax issues.

If you'd like to learn more about saving for college, 529 College Savings Plans, or you'd like to find easy ways to donate to your grandchild's current 529 College Savings Plan, there's a wealth of information about college planning available in the Protective Learning Center.

Was this article helpful?
4
4

All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Money for College

If you're a grandparent who wants to contribute money for college to your grandchildren, this article can help you learn more about smarter ways to go about gifting money for college and college expenses. Protective life explains how to gift money for college properly. Saving money for college can be difficult. With a 529 college savings plan, any one can help, including your grandparents. Having a good college savings plan can help you plan for your future.

WEB.1641.06.15