• 21
  • May
    2010

The economy is terrible. College tuitions are going up. Many parents are facing unemployment. Now is a good time to help grandchildren pay for college, and there are estate planning benefits for you.

If the grandchildren are years away from going to college, consider a 529 college savings plan. The money accrues free of federal income tax, and is generally not taxed when withdrawn to pay for college.

A key element of this plan is the estate planning benefit: Each grandparent can contribute $13,000 a year for each grandchild without filing a gift tax return.

There is also another option:

 

Each grandparent can make a single contribution of $65,000, and the IRS will treat it as if it were paid out in $13,000 increments over five years.

Money goes out of the esate, to beneficiaries you choose, and for a specific purpose you support.

If you have an account for a grandchild that doesn't go to college, you can switch the beneficiary to another family member. But if you close the account and take the money out for a non-educational expense, you will owe income tax and a hefty penalty.

Before you start, coordinate with the parents and check with the college (if you know which one it might be), to make sure the 529 is not counted in the financial aid process. An estate planning attorney can help you set up the account.

  • Source: Orlando Sentinel "This could be time to help grandkids pay for college" May 2, 2010 (Available online at kiplinger.com titled "Help Grandkids Pay the College Tab"