Many grandparents want to help their grandchildren pay for college, but don't know the best ways to do that. Financial advisers who can show them how to make those contributions and reap financial advantages for themselves can shine.
Many families struggle enough to meet their current needs that they just do not have enough to pay for their children's college education. And with the costs of college education increasing year after year, it is almost impossible for students to make enough to pay for it with part-time jobs. Consequently, grandparents are starting to look into ways to help pay for their grandchildren's college education. They have already earned their wealth and are in a better position than the parents to pay for school.
A recent Reuters article examined how grandparents can pay for their grandchildren's college education while getting a tax benefit for themselves. The article, titled “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans,”suggests a 529 college savings plan. This unique account can be used to contribute more than the yearly gift tax exemption into an account that a grandchild can later use for educational expenses. The accounts are not perfect as they could make a grandchild ineligible for financial aid.
Paying for college is difficult, but grandparents who want to do so have several options. A 529 plan is one of them, but in some cases a more traditional trust is a better option. The key is to talk to an estate planning attorney about your best options, in conjunction with your financial advisor. Different families have different needs. Your attorney and financial advisor team can help grandparents sort through the options to come up with the best solution for their needs.
Reference: Reuters (July 18, 2014) “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans”