Whether you’re preparing to update your estate plan to include your grandchildren or you’re just now developing your plan, you may decide that the best thing you can do for them (and their parents) is to help fund their college education. Whether your grandkids are babies, teens or somewhere in between, it’s never too early or too late to put some money toward their education.
The cost of a college education is only going to get higher, so the sooner a family can start saving, the more options a budding college student will have when the time comes. If you plan carefully, you can accomplish your goals of helping your grandchildren get a good education while also minimizing taxes on your estate as well as gift taxes. In fact, gifting education can be part of your larger wealth strategy.
A 529 plan can be the right thing
These tax-deferred plans are among the most common ways that people save for college. Most states, including New Jersey, have their own 529 plans. NJBEST is available only for New Jersey residents. If the parents already have one or more of these plans set up, you can contribute to those. If not, you can open one yourself.
It’s best to communicate with the parents before you do either to make sure that you’re helping – and not interfering – with their goals. It’s also important to learn more about whichever plan you contribute to, including limits, tax-deductibility of contributions and more.
Paying the school directly is an option
If you have a grandchild who will be choosing a school soon, you may choose to directly fund part of their tuition. If you pay the school and the money goes only toward tuition, it won’t be subject to gift taxes. Money designated for room and board and other expenses may be subject to taxes.
You’ll want to discuss this with the parents and with your grandchild before you do this. You also want to let them know about your plans before they start applying for loans. This can make all the difference in what schools your grandchild can consider.
These are just two options. There are also ways to set up trusts to be used solely for higher education. Of course, college isn’t the right choice for everyone. You may want to make your gift more flexible so it can be used for other kinds of training or experience that will help your grandchildren achieve their goals.
It’s a lot to think about. Having experienced legal guidance can help.