Helping Grandkids Pay for College

As a grandparent, you may want to help pay for college expenses for one of your grandchildren. If you are considering helping your grandkids out, there are a number of options that you could consider. Here are a few things to think about if you are planning on giving money to your grandkids for college.

529 College Savings Plan

One of the most popular options that you need to consider is the 529 college savings plan. This is a tax-advantaged savings plan that will allow you to put money away for your grandchild's college expenses. With this type of account, you will make after-tax contributions. You will then be able to invest the money into many different securities. Any returns that are gained will be allowed to grow tax-free. Once the child reaches college age, you will be able to withdraw the money without paying any taxes on it as long as you are withdrawing it for educational expenses. This type of plan has very high annual contribution limits compared to some of the other options out there. Depending on which state you live in, you will be able to contribute somewhere between $100,000 and $350,000 per year. This plan also does not have any income restrictions associated with it.

Coverdell ESA

The Coverdell ESA is another option that you might want to consider as well. With the Coverdell ESA, you have the same tax advantage as you do with the 529 plan. With this type of account, there are no restrictions on what type of educational expenses you can use the money on. They could potentially use the money for private school tuition as well as college tuition. They can also use the money for books, transportation, room and board, and any other qualified educational expense. With the Coverdell ESA, you will also have greater flexibility as to what you can invest your money in and how often you can reallocate assets.

Cash Gift

You might also be considering giving your grandchild a cash gift. When you do this, you need to think about some of the other implications of doing this. For example, if you give the money directly to the grandchild, it could affect financial aid because it will be counted as income for them. However, if you give the money to their parents, it will not be counted on the FAFSA. If you give more than $13,000 per year, you will also have to pay gift taxes on that amount. A better solution might be to have the child get a student loan and then give them a graduation present after college to help them pay off some of the debt.

Loan

You could also potentially give them a loan. If you do this, you need to make sure that you get everything in writing and go over the terms of the loan. This way, you will be able to keep your finances straight and avoid any problems with your grandchildren.

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