The Cost of Love: Is Helping Your Grandchild with Tuition the Right Choice?

You have raised your children, often footing their bills from t-ball and dance lessons to proms, car down payments, and weddings. You helped fund their education nearly two decades ago and now your grandchildren are approaching college age. The tuition and matriculation costs have doubled; however, your income, especially in retirement, has not. Your heartstrings are tugged as they begin to receive college acceptance notices. Do you contribute to their college expenses or not?

According to CollegeBoard, the average annual tuition ranges from $11,610 to $30,780 depending on factors including residency. Room and board add approximately $13,310, often leading a four-year degree to command an investment of more than $100,000. There are benefits to the generous gesture of helping your college-bound grands, from passing on wealth and reducing your youngsters’ debt to tax advantages.

MEMBERS ONLY

Here are a few ways to fund your grandchildren’s education:

• Open a 529 Plan: This offers a tax-deferred investment growth account and tax-free distributions when used to pay for qualified education expenses. Also, the new 2024-25 FAFSA (Free Application for Federal Student Aid) guidelines no longer use accounts owned by grandparents to determine a grandchild’s financial aid eligibility, nor do these accounts affect a student’s scholarships. You may also superfund a 529 plan which allows you to frontload the plan with up to five years of annual donations without incurring a gift tax. In 2025, the IRS allows individuals to gift up to $19k annually without triggering a gift tax obligation. This amount doubles for a married couple filing joint taxes. Therefore, a single grandparent can frontload a 529 with up to $95,000 and married couples can fund the 529 with up to $190,000. Georgia taxpayers may also be eligible for an income tax deduction on contributions made to 529 plans. A word of caution, some financial advisors indicate that grandparents’ ownership of a 529 plan may jeopardize their Medicaid assistance. For complete details, please consult your financial advisor or tax professional.
• Pay Tuition Directly to the College/University: This method alleviates any 529 plan disadvantages and funds paid directly to the college or university for tuition are not subject to the federal government’s gift tax.
• Pay the Student’s Loan: If a grandparent pays the lender directly instead of giving money to the grandchild, it will not count against the annual gift tax limit. Paying down a portion of the loan can help reduce the overall interest the grandchild has to pay and provide a better cash flow for the youngster as they enter the workforce.  

The long-term benefits of boosting a grandchild’s education are countless. It can help set them up for career success, lead to better opportunities, financial independence, and overall life satisfaction.