Grandparents help college funding

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MP173
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Grandparents help college funding

Post by MP173 »

What avenues are available for grandparents to help fund future college expenses for grandchildren?

We currently have 3 grandchildren - ages 3 to 6 and are thinking of setting up a 529 plan.

What are the benefits and disadvantages of such programs (from our perspective). Our state offers a 20% tax credit (state taxes obviously) up to $5000 for a $1000 benefit. If the parents are contributing and taking advantage of the credit, is it still available to us?

I set up UGTM for my two children...not the best method, but both used the funds for college costs and walked away with a little seed money for adult life.

Give us some suggestions and antedotal features.

Thanks

Ed
Katietsu
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Re: Grandparents help college funding

Post by Katietsu »

A 529 plan is great, especially with a state tax benefit. In the states that I am most familiar, you can take the tax credit even if the parents are doing so as well. This may be state dependent. The only negative to a 529 with a grandparent owner that I am aware of is how it may impact financial aid. Sometimes, a grandparent owned 529 can reduce financial aid to a greater degree than a parent owned one, or so I have read. Though, if a 3 and 6 year old have multiple people saving for college, financial aid may not be in the picture.
Flora
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Re: Grandparents help college funding

Post by Flora »

In Wisconsin the state benefit is limited per beneficiary per year so grandparents and parents cannot each take a maximum deduction in the same year on different amounts contributed for the same beneficiary account (though there is a carryover).
SimonJester
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Re: Grandparents help college funding

Post by SimonJester »

Katietsu wrote: Sun Jul 26, 2020 5:07 pm A 529 plan is great, especially with a state tax benefit. In the states that I am most familiar, you can take the tax credit even if the parents are doing so as well. This may be state dependent. The only negative to a 529 with a grandparent owner that I am aware of is how it may impact financial aid. Sometimes, a grandparent owned 529 can reduce financial aid to a greater degree than a parent owned one, or so I have read. Though, if a 3 and 6 year old have multiple people saving for college, financial aid may not be in the picture.
Yes as far as financial AID FAFSA: distributions from the grandparents 529 are considered income to the student, which is more heavily weighted,
529 assets owned by the parents are weighted less so.

However who known what will happen in 12 to 15 years as far as college goes.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
RetiredCSProf
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Re: Grandparents help college funding

Post by RetiredCSProf »

My Mom funded my son's 529 fund. Parents can be designated as the owners of the 529, even when grandparents fund it. This is because it is a completed gift to the beneficiary. The only downside is that the 529 assets are included in parents' assets when the beneficiary (if a dependent) applies for student financial aid.
Katietsu
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Re: Grandparents help college funding

Post by Katietsu »

RetiredCSProf wrote: Sun Jul 26, 2020 5:32 pm My Mom funded my son's 529 fund. Parents can be designated as the owners of the 529, even when grandparents fund it. This is because it is a completed gift to the beneficiary. The only downside is that the 529 assets are included in parents' assets when the beneficiary (if a dependent) applies for student financial aid.
I am not sure that this would allow the grandparents to get the state tax break though if parent is owner.
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bengal22
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Re: Grandparents help college funding

Post by bengal22 »

Katietsu wrote: Sun Jul 26, 2020 6:26 pm
RetiredCSProf wrote: Sun Jul 26, 2020 5:32 pm My Mom funded my son's 529 fund. Parents can be designated as the owners of the 529, even when grandparents fund it. This is because it is a completed gift to the beneficiary. The only downside is that the 529 assets are included in parents' assets when the beneficiary (if a dependent) applies for student financial aid.
I am not sure that this would allow the grandparents to get the state tax break though if parent is owner.
In Ohio it does.
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fourwheelcycle
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Re: Grandparents help college funding

Post by fourwheelcycle »

I encourage you to use 529s to assist in funding your grandchildren's college education. We considered 529s and UTMAs to help fund our grandchildren's education and concluded 529s offer the best opportunity, as long as you are confident your gifted money will be used for qualified educational expenses.

If part of the money will be used for non-qualified expenses, UTMAs offer a more tax-effective means to provide financial gifts under most circumstances. However, UTMAs have important limitations, since they cannot be transferred to any other beneficiary and ownership of the funds must be transferred to each grandchild at their state's age of termination for UTMAs, which is usually 18 or 21.

We ultimately decided to use 529s to assist with college funding and we plan to use UTMAs, if our children and their spouses approve, to provide additional funds that will be available to our grandchildren when they begin their life after college.


Edited for a typo.
Last edited by fourwheelcycle on Sun Jul 26, 2020 10:15 pm, edited 1 time in total.
RetiredAL
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Re: Grandparents help college funding

Post by RetiredAL »

MP173 wrote: Sun Jul 26, 2020 4:56 pm What avenues are available for grandparents to help fund future college expenses for grandchildren?

We currently have 3 grandchildren - ages 3 to 6 and are thinking of setting up a 529 plan.

What are the benefits and disadvantages of such programs (from our perspective). Our state offers a 20% tax credit (state taxes obviously) up to $5000 for a $1000 benefit. If the parents are contributing and taking advantage of the credit, is it still available to us?

I set up UGTM for my two children...not the best method, but both used the funds for college costs and walked away with a little seed money for adult life.

Give us some suggestions and antedotal features.

Thanks

Ed
My parents funded seed money for each of my kids as UGMA's. The first thing you have to decide is how much control you want over the money vs the grandchildren. Some treat it as like "control from the grave", others, like me, feel it's a gift to them to get them started in life, their own life.

I am in firmly the UTMA camp, it's a gift to get them started.

My eldest used hers for college thru her Masters and had a smidge left over. Her husband is a successful trades-man running his own company. They live well in a very rural setting.

My middlemost used his $ to help fund his wife's BA then Law Degree, while he used his computer operations training to support them. Today, they both earn big bucks.

My youngest was never going to be a 4 yr college kid, so some of his money was used for EMT Training, Rescue Training, and Fireman's School. Today he's a WildLand fireman. Without a lot of schooling expense, his account was never depleted, sat untouched for 10+ years growing and part of a now much larger account helped him buy a house recently.

So 3 kids, 3 different uses, all positive. I think it helped give them a better sense of the value of money at a younger age. Of course, there was helpful steering from Mom and Dad.
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MP173
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Re: Grandparents help college funding

Post by MP173 »

Thanks for all replies.

Fourwheelcycle...you mentioned "if the parents approve" (of UGTM) for jump starting their adult life.

What reasons would you expect might be an issue NOT to approve?

Seems like the 529 is the route to go.

Ed
SevenBridgesRoad
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Re: Grandparents help college funding

Post by SevenBridgesRoad »

MP173 wrote: Sun Jul 26, 2020 7:53 pm
...you mentioned "if the parents approve" (of UGTM) for jump starting their adult life.

What reasons would you expect might be an issue NOT to approve?...

Ed
Parents have the primary responsibility for raising their children. You and I can think of a ton of things we wouldn't give children other than ours without asking the parents. Private kindergarten. A hunting rifle. A motorcycle. Three weeks at a summer camp in a distant state. A lot of money. It's just proper and respectful to ask. (And yes, my wife and I are lucky grandparents and are giving our amazing kids and ultra amazing grandkids all sorts of cool things, but always asking is anything reasonably major.)
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WoodSpinner
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Re: Grandparents help college funding

Post by WoodSpinner »

OP,

Another perspective is to skip the 529’s and UTMAs entirely.

You can simply pay the college tuition directly without triggering a gift tax. Invest your money as you normally would but plan for how you will fund this expense. For instance, we won’t need all of our RMDs and will simply use some of them to help pay for our grandkids education (well at least that’s the plan).

It’s a cleaner and simpler approach that can be fine tuned as we age and the grandkids grow up.

WoodSpinner
fourwheelcycle
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Re: Grandparents help college funding

Post by fourwheelcycle »

MP173 wrote: Sun Jul 26, 2020 7:53 pm Fourwheelcycle...you mentioned "if the parents approve" (of UGTM) for jump starting their adult life.

What reasons would you expect might be an issue NOT to approve?
If you read other UTMA threads on this this forum you will note concerns about giving young adults money that might blunt their interest in working to support themselves, and concerns that gaining early control of money can be a risk if a good kid at six or eight turns out to be a problem child at eighteen or twenty.

We gave our own children, now half of the parents, money for their first cars and their first house downpayments, and it never seemed to blunt their life ambitions. However, I do agree grandparents should ask their grandchildren's parents before they gift UTMA money to their grandchildren.
cshell2
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Re: Grandparents help college funding

Post by cshell2 »

SimonJester wrote: Sun Jul 26, 2020 5:32 pm
Katietsu wrote: Sun Jul 26, 2020 5:07 pm A 529 plan is great, especially with a state tax benefit. In the states that I am most familiar, you can take the tax credit even if the parents are doing so as well. This may be state dependent. The only negative to a 529 with a grandparent owner that I am aware of is how it may impact financial aid. Sometimes, a grandparent owned 529 can reduce financial aid to a greater degree than a parent owned one, or so I have read. Though, if a 3 and 6 year old have multiple people saving for college, financial aid may not be in the picture.
Yes as far as financial AID FAFSA: distributions from the grandparents 529 are considered income to the student, which is more heavily weighted,
529 assets owned by the parents are weighted less so.

However who known what will happen in 12 to 15 years as far as college goes.
With the prior prior year lookback of FAFSA if you save the grandparent 529s for spring of sophomore year and beyond they're invisible to financial aid.

But yeah, there's no way of knowing how financial aid will be handled that far out.
Broken Man 1999
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Re: Grandparents help college funding

Post by Broken Man 1999 »

I purchased each of our four grandchildren a pre-paid college savings plan, and I am contributing monthly to their 529 plans. I'm thinking of making them the beneficiaries of an IRA I have. That would top off the tank, so to speak.

If parents of grandchildren continue in their present careers (never a guarantee) the grandchildren would probably receive no aid, except for merit. I'm very OK with that, personally.

I did ask DDs if they had any issues with me purchasing college plans and contributing to 529 plans. They were fine with it. Not surprising, as they had pre-paid college savings plans themselves.

But, seriously, perhaps some parents might object, or think educational expenses are to be paid by them, not grandparents. Parents could believe the grandparents might think the parents weren't capable of helping their children, or perhaps parents wanted their children to pay for their own college expenses. Builds character, doncha know....

Broken Man 1999
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Jack FFR1846
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Re: Grandparents help college funding

Post by Jack FFR1846 »

You can certainly game the 529 system along with FAFSA to your and the grandchildren's parents' benefits.

For 3 grandchildren, start 3 529's.

#1 names your spouse as beneficiary
#2 names the grandchildren's father as beneficiary
#3 names the grandchildren's mother as beneficiary

When the first grandchild hits spring, sophomore year, change beneficiary and make the 529 available to them.

Same for #2 and #3.

FAFSA never sees them. (not that more than 1% of Bogleheads ever get a dime beyond loans). You get the tax benefits. Grandchildren get most of their college subsidized with 529 money.

Where this plan doesn't exactly work.....private schools using CSS and their own forms. The don't do 2 year look backs. It will work to some extent because as long as the grandchildren are not listed as beneficiaries, the parents can answer the question: "Are there any grandparent 529 plans listing the student as beneficiary?" as no.

While the grandchildren are in college, you can have a check made out from your bank to the college in the amount of their entire tuition. This goes around the gift reporting rules, which is allowed. If the check is made out by your bank, it is not traced to you anyways.
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