It’s Time To Go Back To School
Last weekend, while trying to set an appointment for a haircut I noticed every salon had at least a one hour wait or more. “Back to school” the hairdresser noted. She was right. Parents were getting their elementary and high school students ready to go back. While living in a “college town,” I could hardly miss the influx of new residents walking through town, moving into housing, and following the signs directing them to West Chester University parking areas in the past several weeks. The campus approach is beautiful. There is an energy associated with new experiences and new learning. I understand also, by the way, that some seniors might, if they wish explore auditing some courses. Certainly active seniors participate in the life of the University and its many activities.
With high hopes come high expectations. With COVID restrictions essentially behind us, in person learning opens new doors and alternatives.
Other issues for new college aspirants include opportunity and cost. Student loans have been a serious issue for discussion of late. Also, with stiff competition and many choices it can be difficult for newly minted high school graduates to decide what they want to do. College students have been found to have considerably greater earning power provided they graduate.
In the meanwhile there are ways that grandparents who have the means can help. A recent article by Kathryn Flynn, “13 Easy Ways Grandparents Can Help Pay for College,” gives ideas:
- Pay tuition directly to your grandchild’s school. Note – Gift Tax is not a serious consideration although referenced in this article. Note also that, both regarding this method and others, be certain that you would not be affected by Medicaid gifting rules at a later date and that you have sufficient resources to contribute.
- Open a 529 plan in your own name. 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 on qualified higher education expenses including tuition, books, supplies and some room and board costs. If withdrawals are non-qualified there can be tax consequences but note that funds deposited and intended for one child/student can, if for instance that child decides not to pursue further education, be used for another. Also note importantly that 529 funds can be used for college or for vocational training. So trade school is a possibility as well.
- Contribute to a 529 plan established by your grandchild’s parent. If started early the fund can grow substantially. With 520’s consider the effect on application for student loans.
- The article suggests you might offer your grandchild a loan. For several reasons I do not find this to be an attractive suggestion.
- For similar reasons I do not believe an offer to pay off student debt after graduation is a good idea. A direct creditor-debtor relationship I believe should be discouraged.
- Support and encourage your grandchildren’s interests. Emotional support and encouragement can make all the difference to grandchildren (and children). I am reminded in my own case of my Aunt Fran’s comments on my beginning to study law. Money is not the only way.
- U.S. Savings Bonds. This is not a common method but the article points out an exclusion from tax on the interest on Series EE and I bonds where proceeds are used to pay for higher education.
- Set up an education trust. This process is more complicated but it does allow specific provision tailored to the wishes of you as settlor of the trust. It can be irrevocable which might or might not be desired.
- Assist in college savings and college search efforts. This can be done in many ways and does not necessarily have to involve expense to you.
- Put money in a custodial account under UGMA/UTMA. This is Uniform Gifts to Minor’s Act/Uniform Transfers to Minor’s Act. It can be withdrawn at age 18.
- Contribute to a Coverdell Education Savings Account. There are some limitations.
- Share the gift of time and interests. This should be obvious without comment. Your interests can point your grandchild (or child) in a direction.
- Hire a financial planner for help. This might apply in circumstances where there are large sums of money involved.
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.