Exact matches only
Search in title
Search in content
Search in comments
Search in excerpt
Search in posts
Search in pages
Search in groups
Search in users
Search in forums
Filter by Custom Post Type
Filter by Categories
Featured
Health Care
Healthy Lifestyle
Income
Insurance
Investments
Personal Finance
Protection
Retirement
Taxes
Uncategorized
Your Financial Life
By Transamerica / Feb 19, 2016

4 Ways Grandparents Can Help Their Grandkids Pay for College

grandparents and grandkids

 

College can be a significant experience in a person’s life. It’s a time when students are not just exposed to advanced academics, but to cultures, ideas and adult responsibilities that leave impressions which can last long after graduation. If you are a grandparent who wants to help your grandchildren pay for college, consider the following tips to help them get that experience.

  1. Consider financial gifts and the gifting limits.
    Before giving financial gifts to your grandchildren, you should be aware of gift tax issues, including the annual gift tax exclusion limit and taxes you may be exposed to if you exceed those limits. According to the IRS, $14,000 is the annual limit a grandchild can receive from one grandparent before taxes will need to be paid. If you are married, both you and your spouse can give a financial gift to your grandchild for a total of $28,000 before taxes kick in.
  1. Consider establishing a custodial account.
    The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) allow parents and grandparents to establish accounts on behalf of a child or grandchild. The grandparents retain control of the account while the grandchildren are minors. Once your grandchild reaches adulthood (18-21, depending upon which state they live in), the account transfers to their control. This transfer cannot be reversed as these types of custodial accounts are regarded as irrevocable gifts.
  1. Consider investing in a mutual fund.
    Another way to help your grandchild pay their college tuition is to invest in a mutual fund. If you do set up a custodial account for your grandchild, when they are of age, they can inherit control of the mutual fund through that account to help pay for school.
  1. Consider setting up an educational account.
    Educational accounts are another way to help grandchildren pay for college. Think about opening a 529 plan or a Coverdell Education Savings Account (ESA). Both accounts are tax-deferred and not only are your contributions tax-deferred, but so are your grandchild’s withdrawals from the accounts if the expenses are college related. However, the 529 plan and Coverdell ESA do differ from one another. While a grandparent can open an ESA, the Responsible Individual must be a parent/guardian. The ESA only allows for $2,000 in annual contributions . Additionally, you can no longer contribute to your grandchild’s ESA once they turn 18. While a 529 plan is an investment product strictly for college-related expenses, a Coverdell ESA can also be used to help pay for a grandchild’s K-12th grade education.

Lastly, before you consider helping your grandchildren with their college costs, be sure to assess your finances to make certain you have enough for your own needs, particularly if you are retired. For more retirement information, check out the 16th Annual Transamerica Retirement Survey, The Current State of Retirement: Pre-Retiress Expectations and Retiree Realities, from the nonprofit Transamerica Center for Retirement Studies®.

For many, college is an important step in their life. If you are a grandparent who thinks this way, helping your grandchildren pay for school is a wonderful gift to give. Just remember, with any long-term investment, it’s best to start early and to contribute consistently, and consult with a qualified financial professional.

 

Neither Transamerica nor its agents or representatives may provide tax or legal advice.  Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors regarding their particular situation and the concepts presented herein.

All investing involves risk, including the potential loss of principal. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.  There is no assurance that any investment will meet its stated objectives.

Information regarding 529 plans is general in nature and is not intended as legal or tax advice. 529 plans are complex and the federal and state laws or regulations on which they are based vary for each type of plan and are subject to change. In addition, some products, investment vehicles, and services may not be available or appropriate in all education savings plans. You may wish to seek the advice of legal counsel or a tax professional to address your specific situation.

Nothing presented herein should be construed as a recommendation to purchase or sell a particular investment or follow any investment technique or strategy.

The Transamerica Center for Retirement Studies® (TCRS) is a division of Transamerica Institute®, a nonprofit, private foundation. Transamerica Institute® is funded by contributions from Transamerica Life Insurance Company and its affiliates and may receive funds from unaffiliated third parties. For more information about TCRS, please refer to www.transamericacenter.org.

 

16-5912