How Grandparents Can Help With Back to School Expense
Living in a “college town” in Pennsylvania as I do I have come to expect the comings and goings of new students filling the streets, moving into their dorms and student housing and celebrating the warm weather out of doors. Restaurants are busy and the casual atmosphere is hard to miss. There will be more of that I know come August. It must have been a novice freshman student drummer, I think, practicing music for a future parade that I heard down the street from me last weekend. That definitely would be hard to miss. There is an energy associated with new experiences and new learning.
Other issues for new college aspirants include opportunity and cost. Will the financial rewards of the education received be enough to offset the expense? The issue of student loans and forgiveness of loans has occupied a great deal of time over the past few years as some loans continue long after a student graduates. Additional problems may arise when a student enters college, fails to complete the program, for one reason or another, and then carries debt into the earning years without offsetting higher income from employment. Recent years have also considered the importance of skilled labor in tech fields including software developers, systems analysts and other positions not so commonly considered in the past. We also need electricians, plumbers, contractors, and blue collar workers as much as we need doctors, attorneys, teachers, and other traditional professions so vocational training is more and more becoming a subject for educational assistance. Some of us wish we had learned more of this in the past.
A common question for grandparents considering their grandchidren’s financial future is “how can we help.” Along with this is the consideration “what are the consequences for me in gifting?” There are ways that grandparents who have the financial means can help. It might be a good idea also to discuss first with your financial advisor and/or estate planning attorney the considerations whether your present financial condition is appropriate for gifting. I previously wrote about an article by Kathryn Flynn, “13 Easy Ways Grandparents Can Help Pay for College, https://www.savingforcollege.com/article/10-easy-ways-grandparents-can-help-pay-for-college . Here are some ideas she suggested.
- Tuition payments to a grandchild’s school are not considered taxable gifts under the federal gift tax rules. Although federal gift tax is not a significant consideration for most donors it is a means of reducing their overall taxable estate. Direct payments would be during the time or just prior to their beginning the school year.
- You could open a 529 plan for grandchildren. 529 plans have been an excellent means to assist grandchildren (or children) with payment for college. They offer tax-free earnings and tax-free withdrawals when the funds are spent for qualified higher education expenses including tuition, books, supplies and some room and board costs. Funds deposited and intended for one child/student can be used for another if the originally named child, for instance, decides not to pursue higher education. 529 funds can be used both for college and for vocational or trade school training.
- You could contribute to a 529 plan established by your grandchild’s parent. Consider with 529 gifting, however, both regarding one established by yourself and one established by your grandchild’s parent that it could impact calculations in applications for financial assistance such as FAFSA.
- You could set up an education trust. This is more complicated but allows for additional customization.
- You can deposit funds into a custodial account under a Uniform Gifts to Minors Account (UGMA) or Uniform Transfers to Minors Account (UTMA). One consideration here is that your grandchild can withdraw the funds at age 18 so it might be used with caution.
Finally, here are some ideas that are more personal and might be more meaningful to your grandchild as well. You can support and encourage your grandchildren’s interests and possibly provide insight through your own experiences. Emotional support and encouragement can make all the difference to grandchildren (and children). You can assist in college and vocational school
search efforts. You might, along with your own child, your grandchild’s parent, visit college campuses and discuss alternatives. You can share the gift of time and interests. Your own experiences might shed light on some interests your grandchild might not otherwise have considered.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.