College is extremely expensive for most families. When tuition, room, board, books and other miscellaneous expenses are all added in the total cost of a college degree is often in the six figures. Not wanting to saddle their younger family members with student loan debt, many families are struggling to find affordable ways to meets these expenses themselves.
It used to be normal/expected for parents to pay their children's way through college or for the children themselves to work their own way through. However, the current cost of a college education is so high that it is almost impossible for the student to earn enough to pay for it with part-time jobs. Many parents struggle to meet their family’s current needs in this economic climate, not to mention attempting to save for their own retirement. As such, they don’t have enough either to save for nor to pay for their children's advanced education. Increasingly, paying for college has become something that grandparents, who have already earned their wealth and are in a better position than the parents, have been doing.
A recent Reuters article examined how grandparents can pay for their grandchildren's college education while getting a tax benefit for themselves simultaneously. The article, titled “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans,” suggests a 529 college savings plan. This unique account can be used to contribute more than the yearly gift tax exemption into an account that a grandchild can later use for educational expenses. The accounts are not perfect; they can make a grandchild ineligible for financial aid.
Paying for college is extremely difficult, but grandparents who want assist with this have several options. A 529 plan is one of them, but in some cases, a more traditional trust is a better option. The key is to talk to an estate planning attorney in conjunction with your financial advisor to determine your best option(s).
Reference: Reuters (July 18, 2014) “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans”