Last week we discussed giving the gift of a college education to your grandchildren. We raised some potential problems with giving the money directly to them to pay their tuition. Today we’ll talk about some safer approaches.
One is to pay your grandchild’s tuition directly to his or her college. This makes the gift exempt from rules governing gift taxes, so you could conceivably provide funding for room and board, additional college fees, books, and more.
Another option is to contribute to a 529 college savings plan. Some of these make allowances for the utilization of certain investment options. Similarly, prepaid tuition plans allow you to purchase what are known as units. These represent payments for select parts of future tuition costs.
A 529 college savings plan account is not owned by your grandchild. Typically, it is owned by one of your grandchild’s parents. The advantage of this approach is that if your grandchild decides not to go to college, he or she does not have access to the money directly. Or, if he or she decides not to attend a school covered by the account, there are ways to make sure the funds can be used elsewhere.
Of course, the most important consideration regarding paying for your grandchildren’s education is whether you can afford it. Not just today, but five, ten, or fifteen years from now. Contact us to discuss whether you can afford to pay for your grandchildren’s education, and experienced counsel on the ideal approach.