Posted by Gerald J. Turner –
Many grandparents want to help their grandchildren pay for their education. However, the cost of a college education is on the rise, making funding a student’s education a real sacrifice, especially for those moving toward retirement or living on a fixed-income.
College financial-aid and student loan regulations are also changing rapidly, and qualifying for need-based financial aid can be tricky. That’s why it is important for students, parents, and grandparents to be on the same page about funding a young person’s college experience.
Here’s how to help the student while still getting the most out of need-based aid:
1. Take advantage of a parental 529 savings plan, but make sure it belongs to the parent or student. If you’re thinking about helping a student pay for college, then you have probably heard of a 529 plan. If a 529 belongs to the parent or a dependent student, then the funds are disregarded when determining financial aid eligibility.
The rules are different, however, if the plan is owned by anyone else. This includes grandparents or any other family member who is not a custodial parent. Distributions from these plans count as untaxed income to the student, which can significantly jeopardize need-based aid qualification.
2. Wait until January of Junior year. By then, your student will have already filed their final financial aid application for their senior year. After that application is submitted, any grandparent gifts won’t work against the student’s qualification for need-based aid. So consider letting the parents and the student pay for the first 3 years of school, then make your contributions at the end of the college experience.
3. Get your own ducks in a row before paying your grandchild’s college bills. While your generosity may cause a real desire to help, first make sure that your own retirement and long-term care plans are in place. You don’t want to end up costing your own kids or grandkids money in the future because you spent too much on tuition bills.
If you have questions about how contributing to your grandchildren’s college tuition will affect your retirement plans, contact us to learn more. We specialize in educating and helping you protect what you have for the people you love the most. Contact us so you can learn more about how we can help you and your family.