Any thoughts on the best way to help fund the college expenses for our grand kids. We have two grandchildren and would like to contribute in a way that maximizes their benefit while minimizing our tax exposure. The parents are open to any type of assistance for the college costs, but we wish to think about our options. Thanks.
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Contributing to grand kid's education
Very generous of you. I'm sure you know that the best way to approach this issue is to talk to an attorney or financial planner who can review your entire financial situation and make suggestions that are consistent with your goals. Without knowing your financial situation, it is impossible to make a useful suggestion. Having said that, there are some tactics that are widely used by grandparents to help defray the high costs of a college education for their grand children.
Under the annual gift tax exclusion, you and your spouse can each gift up to $13,000 to as many people as you like, every year. You only have two grandchildren, but if you had ten, you could each gift $13,000 to every one of them. Then, you could do it again next year.
Grandparents can also set up, or merely contribute to, a 529 College Savings Plan for their grandchild. FYI: When the grandchild withdraws money from the 529 Plan, it will be counted as her income for the year in which the withdrawal is made. However, students usually pay the lowest tax rate because of their limited income. There are many other options which, depending on your situation, may work well for you. Again, talk to an expert before making any moves. Hope that helps.