Making a payment directly to the college avoids gift taxes, no matter the amount.
Write A Tuition Check Directly To Your Grandchildren’s CollegeĪdvantages: Waiting until your grandchildren actually enter school can give you flexibility, especially if you’re still in the process of building your retirement accounts now. So waiting until the second semester of sophomore year (or whenever your grandchild is two years away from graduation) is a workaround that allows your grandchild to benefit from financial aid as well as the 529 account.Ģ. Any student applying for federal financial aid must fill out this application, but the information used for aid calculations is based on tax information from two years prior.
College expenses free#
Two workarounds are to transfer 529 ownership to the child’s parents, which will minimize the effect the 529 withdrawals will have on financial aid opportunities, or to wait until January of your grandchild’s sophomore year to begin withdrawing funds - at which point the withdrawals won’t affect the Free Application for Federal Student Aid (FAFSA). In addition, a 529 plan in your name may affect the financial aid eligibility of your grandchild, as withdrawn money is seen as student income.
While the money will be subject to tax and a 10% penalty on the earnings portion, the revocability can give you flexibility in case an emergency happens,” says Oakley.ĭisadvantages: While a 529 plan may not be taxed as part of your estate, it may affect your Medicaid eligibility, as it is could be counted as an asset. “If a 529 plan is in your name, it’s possible to take back those funds at any time. One is that the 529 plan can serve as your own financial safety net. And while it’s possible to give to the 529 plan that a parent opens for their children, there are some advantages that come from being the owner of a 529 account.
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