With the cost of college continuing to rise, it\u2019s important that students, parents and grandparents understand the options they have for tackling this significant expense.<\/p>\n
Invest in a 529 Plan<\/strong> These plans offer tax-deferred growth on the dollars invested in the plan, and withdrawals for \u201capproved higher education expenses\u201d are tax-free.<\/p>\n The grandparent would be the account owner, and the student the account beneficiary. Note that it is possible for the grandparent to contribute to a 529 plan owned by the parent, as well.<\/p>\n These plans are flexible, in that any unused funds can be used for another grandchild or blood relative, simply by changing the beneficiary on the account.<\/p>\n Grandparents can pick any state\u2019s plan, but because some states offer residents a tax deduction on contributions, it makes sense to compare your home state\u2019s plan to other \u201cbest in class\u201d plans.<\/p>\n Contributions to an account are considered \u201cgifts\u201d to the beneficiary for tax purposes. Grandparents can currently contribute as much as $15,000 a year (and $30,000 a year if they are married) per grandchild to a 529 account, without triggering any gift tax issues. And, it\u2019s even possible to \u201cbunch\u201d up to 5 years of annual gifts into a single 529 contribution, which can be attractive to those who want to reduce the size of their taxable estate. As an example, married grandparents with four grandchildren could contribute as much as $600,000 in a single year ($15,000 per grandchild, times two grandparents, times four grandchildren, times five \u201cbunched\u201d years).<\/p>\n
\nState-sponsored education savings plans \u2013 known as 529 Plans \u2013 can be a great way for grandparents to help with college costs.<\/p>\n