DeFreitas & Minsky Accounting Blog

How to Help Grandkids Pay for College

Posted by admin on Sep 23, 2014 4:41:54 AM

help grandkids pay for college

Grandparents who are trying to help grandkids pay for college may need to be concerned about whether or not their gift will detract from the financial aid for which the grandkids may be eligible. However, some grandparents needn’t worry about that, because if their grandkids’ immediate family has a certain level of income or assets, they won’t qualify for need-based financial aid anyway.

Help Grandkids Pay for College 

That being said, as college costs continue to rise, even families that live pretty comfortably can sometimes find themselves eligible for financial aid, so grandparents should always talk about their grandkids’ options for paying for college before any decisions are made.

It’s also worth considering that when grandparents gift any assets to their grandchildren, those assets will wind up in the grandchildren’s control by the time they turn 21, if not sooner. Therefore, while the intention is for the money to be used to pay for college, once the grandkid controls the money, he can use it however he sees fit, whether that’s for college or otherwise.

FAFSA Assessments 

If that’s a bit of a concern for you, don’t worry! There’s a way to avoid such a scenario: gift the money to your children, the student’s parents, to ensure the money is spent on school. In addition to making sure the money goes toward the cost of college, gifting money to your children instead of your grandchildren can pay off with regard to FAFSA assessments, too.

While the student’s assets are assessed by 20% when the FAFSA is reviewed, the parent’s assets are assessed by no more than 5.64%, so any reduction that’s imposed would be less than if the assets had been gifted directly to the student.

For example, suppose the Jacksons had been giving gifts to their son Max, Stephanie’s father, instead of to Stephanie over the years. The gifts they’d given add $40,000 to Max’s assets. The aid that Stephanie would be eligible for could only be reduced by $2,256, which is 5.64% of $40,000. If those assets had been in Stephanie’s name, her financial aid could be reduced by as much as $8,000!

Speak to one of our accountants today

Topics: Tax Laws, Financial Planning

DM CPA Firm Blog

Find answers to any accounting questions you have.

These questions are usually from our clients.  If you would like to send us a question, please email us at info@dmaccountingfirm.com or ask on one of our social accounts.

Subscribe to Email Updates

Recent Posts

Follow Me