You might not always understand your grandchildren, but you want to support them in any way possible. Contributing to education for your grandchildren is one way to support their academic goals. You can start contributing at any time, whether your grandkids are still babies or they've already graduated college. Explore these ways to contribute with options for all budgets.
A 529 plan is a special savings program for educational expenses with tax benefits. You make contributions after taxes, but the money in the account remains tax-free, even when your grandchild receives a distribution.
You can set up a 529 plan for your grandchild, which leaves you in charge of the money. However, if the family already has 529 plans set up for your grandchildren, you can contribute to them without the hassle of setting up your own account. This option can work well if you're trying to paying off your own debt and don't have a lot of extra money to contribute. Even small amounts help and can grow over time.
Instead of your grandchild going through traditional methods of borrowing money for college, you can become the backer. Offering them a loan means they can get the money they need quickly with more flexibility. You can offer them a lower interest rate and lower monthly payments than the standard rate to make borrowing more affordable.
Depending on how much you lend your grandchild, the money could be subject to taxation or IRS regulations. For instance, if you want to offer an interest-free loan, you can only do so up to $10,000. If you lend more, you have to charge a minimum interest rate as established by the IRS. You also run the risk of your grandchild failing to pay back the loan. Work with a lawyer to understand how the loan will affect you financially. Have them draw up a contract that specifies the terms of the loan.
If your grandchild is already in college, you can pay the institution directly to cover some or all of their tuition. This option gives you the peace of mind of knowing that the money is going to its intended purpose. If you give money directly to your grandchild, they might spend it on other things. Plus, if you pay the college directly for tuition, it's not subject to federal gift taxes. You can pay larger amounts this way than you could by offering cash to your grandchild.
Setting up an education trust is another way to pay for some of your grandchild's educational expenses. It's a trust fund that you create as the grantor with your grandchild as the beneficiary. You can also designate a trustee to manage the funds you place in the trust. A logical choice would be the parents because they have a good understanding of their child's educational expenses. You can set stipulations on the trust, such as requiring them to maintain a certain GPA. A lawyer can help you set up the education trust to ensure you and your grandchild are protected financially in various situations.
It's not too late to help grandchildren who've already graduated from college if they took out student loans. You might offer to pay off some of their student loans to lower their debt. Keep in mind that this is considered a gift, which means it could be subject to gift taxes based on the amount. For 2023, the annual exclusion is $17,000 per recipient. If you want to pay more, the amount could be taxed — with you being responsible for the taxes.
Tuition isn't the only expense college students incur. They need books, school supplies and basics for their dorm rooms. Take your grandchild shopping for their must-have college expenses, or give them cash or gift cards to buy the necessities themselves.
Another fun idea is to buy an inexpensive wallet and fill it with gift cards from restaurants, stores and entertainment options close to campus. Because college students often have tight budgets, this is a way to give them some spending money.
If you want a long-term investment that helps your grandchild in the short term, consider buying a rental property close to campus. You can offer your grandchild a free or low-cost place to live close to campus so they can put more of their money toward tuition.
Buying a larger home with multiple bedrooms means you can rent out the extra rooms to other college students, generating income. When your grandchild graduates, you still have the investment property, so you can make money off it with other college students. Or you can sell it when your grandchild is no longer going to school there.
Even if your funds are limited, you can help your grandkids make college more affordable. As graduation gets closer, students and their parents are often overwhelmed with everything they have to do. You can help by looking for scholarships and grants that might work for your grandchild. Doing a little research helps you screen the options to find the most promising ones.