Every parent wants the best for their children and grandchildren, and that includes a good education.
With the escalating cost of higher education, it takes careful planning and support to be able to send your children to the college of their choice. In fact, paying your child’s post-secondary education tuition costs may have been one of the highest expenses of your lifetime. And now, as a grandparent, you may have sufficient retirement funding to consider assisting with a grandchild’s education.
Start saving early
Saving for college requires a plan, and the earlier you start saving, the more time you have to accumulate. There are many saving and financing options to cover a college education.
Section 529 plans
Section 529 plans, or qualified state tuition plans, allow parents, grandparents and others to contribute to a tax-deferred account to help cover higher education costs. Earnings have the potential to grow tax-deferred from federal income taxes, and they’re received federal income-tax free when used for qualified expenses (such as tuition, books, room and board).
Coverdell Education Savings Accounts
Coverdell Education Savings Accounts also allow parents, grandparents and others to contribute a specified dollar amount each year, per child for qualified elementary, secondary school and higher education expenses. When used for qualified expenses (such as tuition, room and board), these accounts are federal income tax-free.
Custodial Accounts (Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors (UTMA))
Created for a minor, a custodial account at a mutual fund company or brokerage firm provides a simple way to transfer property to a minor without creating a formal trust. When the child reaches “age of majority” (age 18 or 21 depending on the state), the child then has full control over the account.
Note that for Section 529, Coverdell and Custodial accounts, you should consult your tax advisor to understand the tax implications. Section 529 and Coverdell accounts may impose potential penalties when these accounts are used for nonqualified expenses.
Accept help from grandparents
Grandparents with a greater disposable income may also be interested in helping a grandchild pay for college. A variety of approaches to gifting can assist funding grandchildren’s education expenses, and help with estate planning.
Learn from an advisor
Planning for education can be a challenge. Working with a financial advisor can help you find the option that works to enhance your child’s opportunity for financial aid with grants, scholarships and loans.
The tax and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Lincoln does not provide legal or tax advice, and laws and regulations are subject to change. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on how these products and services will function. You should consult an attorney or tax professional regarding your specific legal or tax situation.
Please carefully consider the plan's investment objectives, risks, charges, and expenses before investing. For this and other information on any 529 college savings plan, contact your advisor for the offering document. Read it carefully before you invest or send money.
LCN-1746101-032817 – B