Even with scholarships, financial aid, and grants, a college education can be difficult to fund. If your grandchildren have dreams of a higher degree or your deepest wish is for them to pursue higher education, there are ways you can help plan for the future and ease the financial burden. These tips will help you help them continue their education and earn their degree at their preferred university, college, or advanced degree program:
Check out a tax-smart plan
The sooner you start to save money for your grandchildren’s college education, the bigger the nest egg will be when it’s time for them to start their first year. But don’t stress if your grandchildren are way out of diapers — you can still offer financial assistance, especially when you save with an investment plan such as a state-sponsored 529 plan.
“These plans, which invest mainly in mutual funds, offer tax-deferred growth on every dollar invested, and distributions are tax-free when used for qualified educational purposes,” explains Cheryl Winokur Munk, writer for The Wall Street Journal.
Other benefits of a 529 plan are that another grandchild can have access to any unused funds, she adds, and the plan can be parent-, grandparent-, or even student-owned. Having it under your name will give you greater control over how the money is dispersed, but it can also have a greater impact on your grandchild’s eligibility for financial aid than would a parent-owned account.
“Distributions count as student income on the Free Application for Federal Student Aid, or FAFSA, and student income is weighed much more heavily than parental income in the aid formula,” according to Munk.
Gift funds
You don’t have to open up a separate or specific plan in order to help your grandchild pay for college. You could just give them the money directly, as a gift.
“The annual exclusion allows you to give $16,000 in 2022 in cash or other assets each year to as many people as you want. Spouses can combine annual exclusions to give $32,000 to as many individuals as they like — tax-free,” says Jean Folger of Investopedia.com.
If you want to avoid any limit on your tax liability, send your funds directly to your grandchild’s university or college, she adds.
Help with student loan debt
Sometimes planning ahead isn’t possible, but you can make a major difference in your child’s college expenses by focusing on their accrued student loan debt.
“You can’t pay student loan debt directly, but you could always gift money to cover the debt to your grandchildren. Again, because the FAFSA has a two-year lookback, grandparents should wait until after the grandchild’s sophomore year or after the grandchild graduates to help pay student loans,” advises Emma Patch, writer for Kiplinger.com.
In addition to emotional support, you can offer your grandchild financial support to earn their college degree with state-sponsored tax plans, gifting them directly, paying their tuition bill, or helping them satisfy their student loan payments. No matter what method you choose, be sure to consult a tax professional or trusted financial planner to help you determine the best way to help that protects both you and your grandchild.