With August only days away, the new school year is on the horizon. Despite losing some of their own investments, grandparents still want to help their grandchildren with college expenses. According to Money Magazine, 65% of grandparents plan to do just that. It’s important to choose the best ways to give. Otherwise, it could hurt a student’s chance of financial aid.

Cutting a Check

Be careful when simply giving money by check to the grandchild. This money would be considered part of the student’s income and must be reported on the Free Application for Federal Student Aid (FAFSA). The same can be said for any checks sent directly to the school or college. A possible way to avoid this is by giving the check to the child’s parents. That way it would be considered a parental asset.

Tip: Avoid taxes by keeping yearly contributions under the gift-tax exclusion of $13,000.

529 Accounts
Grandparents have two options with a 529 college savings plan. They can add up to $13,000 yearly or a lump sum of $65,000 per child using a special five-year election. Unlike a check, 529 accounts don’t count against federal aid. Depending on the state, a possible benefit for grandparents lies in a state tax write-off.

Tip: Distributions from 529 plans are considered income, so don’t use the funds until a student’s senior year.

After College Gifts

Some grandparents offer to pay for a grandchild’s student loans after graduation. This option won’t affect aid eligibility and will hopefully encourage a student to finish college. A possible negative is if the grandparent passes away before graduation. The student will then be responsible for repaying the loans.

Tip: Remember that $13,000 limit? Try to keep the yearly payoff of loans at $13,000 or below to avoid owing the IRS.

 
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The certified college planners at Marca Life Planning can provide further advice for your college planning. Contact us at 800-489-3933. 

With Tax Day rapidly approaching, many children of aging parents will need to broach the subject of their parents’ money. Many seniors feel that money is a “private” matter that shouldn’t be discussed. When you first approach your parents, do it in a warm and friendly manner. Share your own thoughts about the future. This can allow for the conversation to progress naturally.

The biggest hurdle is opening the line of communication and gaining trust. It may take several attempts, so don’t get frustrated. When you’re ready to move forward, get organized. Finding important documents such as wills, bank statements, previous tax returns, and insurance policies will give you a complete picture of their finances. Organizations, such as AARP, provide free tools to assist in organization and money management.

Seniors can qualify for certain tax deductions. The IRS provides nearly 100 publications that contain information about specific situations. Call 800-TAX-FORM or download from IRS.gov for free copies of these publications. From February 1 to April 15, AARP Tax-Aide assists seniors and their families with tax preparation. Visit their website to search for a location near you.

The best advice is to be prepared, do your homework, and consult with a professional if needed. Helping your elderly parents with tax season can open the door for future discussions. Better money management can result and, in the event of an emergency, cause less turmoil.