One of the more common requests I get from clients is how to help their grandkids. These clients usually have had a will for years. Many have a trust as well. But now their children are grown up. They’ve got grandchildren and the trust they set up for their kids isn’t really relevant to their shifting goals. At this stage, a financial advisor is a great investment to make sure that your assets are allocated for retirement. Beyond your personal planning, there are a few ways you can also help your grandkids pay for college.
A 529 Plan
The creation of 529 plans has allowed many grandparents to contribute to their grandchildren’s educational expenses. A 529 plan offers tax-deferred growth and the money is not taxed when it is used for educational expenses. You can even transfer the money in the account to other relatives. Currently, you can donate $15,000 per grandkid in a year without gift-tax issues. If you are married, that amount rises to $30,000. Each state has its own 529 plan and some of them even offer a tax benefit if you are a resident of that state and are contributing to the plan. One drawback of this approach can be that the money in the account can count towards the grandchild’s finances for FAFSA purposes.
Direct Payments to the School
A second option for grandparents is to make direct payments to the schools. You need to be careful what you pay for to ensure you don’t trigger a gift-tax event. If the expenses are not “tuition”, then you may create a gift-tax situation. And there is no charitable distribution for payments for tuition. Finally, these payments can also affect the ability of the student to get need-based financial aid from the school.
Other Options
Your financial advisor can also suggest other options that may work for your situation. A recent Wall Street Journal article discusses the use of fixed-index universal-life insurance policies, but also notes that they can be controversial.
Next Steps
If you’ve got grandkids and you don’t have a will yet, or if you have one that you may need to update, call my office to set up a meeting and we can review the best options for you – (877) AMAYERS.
