The best way for grandparents to help pay for college
529 plans offer unique benefits for grandparents, including reducing estate tax exposure, being able to retain control of the assets throughout the life of the account, ease of management and flexibility.
Are 529 plans tax deductible for grandparents?
529 plan contributions are not deductible at the federal level, but over 30 states offer a tax deduction or credit for contributions. However, some states only allow the 529 plan account owner to claim the deduction. Grandparents need to check with their state’s rules and decide whether it makes sense to open their own account or contribute to a parent’s account.
How does a grandparent-owned 529 plan affect financial aid?
A grandparent-owned 529 plan will have no effect on a student’s financial aid eligibility – as long as the funds remain in the account. But if the grandparent provides any type of financial support to the student (including withdrawals from a 529 plan), the amount is reportable as student income on the FAFSA. As much as 50% of student income will be counted as available funds to pay for college, so $10,000 from a grandparent-owned 529 plan can reduce need-based aid eligibility by as much as $5,000.
Grandparent FAQs
- Can a grandparent contribute to a parent-owned 529 plan?
- What happens to 529 plan money if child does not go to college?
- What happens to my 529 plan if I die or become incapacitated?
- Should I set up a separate 529 plan for each child?
- How to pick 529 plan if future college is unknown
- Paying tuition directly avoids gift tax, so why use a 529 plan?
- What are the estate-planning benefits of 529 plans?
- Can I withdraw money from a 529 plan for unplanned emergencies?
- Do 529 plans count against Medicaid benefits?
- How do Coverdell education savings accounts compare to 529 plans?
- Does a 529 plan count against eligibility for financial aid?
- Which 529 plan investment options should I chose?
- Is giving money to a custodial (UTMA) account a good idea?
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Grandparent articles
A 529 college savings plan can be a very effective way for grandparents to build a college fund for their grandchildren. However, there are a few questions grandparents must ask themselves before opening a 529 account.
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