When your grandchild talks about college, what do you picture? A dorm room decked out with string lights and textbooks? Late-night coffee-fueled study sessions? Or maybe a mountain of bills that seems to grow taller every year?
College costs have become one of the most prominent financial challenges families face today. What used to be a reasonable investment in a young person’s future now often feels like an uphill battle against skyrocketing tuition, fees, and living expenses.
While parents typically wrestle with saving for both college and retirement, grandparents often find themselves uniquely positioned to help ease the burden. But how can they do so wisely, making the most of their resources while preserving the wealth they’ve built over a lifetime?
This isn’t just about gifting money. It’s about smart, strategic planning that leverages new financial tools and changes in the aid system to optimize your legacy and provide real, lasting impact for your grandchildren’s future. Let’s look at how you can help make college more accessible and affordable for the younger generation.
Why Starting Early Matters
One of the best things you can do is start early. The longer your money has to grow, the bigger the difference it can make. Even modest monthly contributions add up over time thanks to the magic of compounding.
More importantly, by helping early, you’re easing the financial load your grandkids might face down the road. Student loans can be a heavy burden and getting a head start on saving can help them avoid (or at least reduce) that debt.
FAFSA Updates That Benefit Grandparents
You might have heard that if grandparents help pay for college, it can reduce a student’s financial aid. This concern has been common, but recent changes to Free Application for Federal Student Aid (FAFSA) rules have improved the situation.
Importantly, under the new rules, assets or income from grandparents are not reported on the FAFSA form itself. This means that distributions from grandparent-owned 529 plans or other gifts from grandparents generally do not reduce a student’s eligibility for federal need-based aid. Prior to 2024, grandparent owned 529s could lower aid on the FAFSA, but not anymore. However, some private colleges use the College Scholarship Service (CSS) Profile, an additional financial aid form, to award institutional aid. Unlike the FAFSA, the CSS Profile may take grandparent gifts or assets into account, so these contributions could still affect a student’s aid package at those schools.
Something else worth sharing with your grandkids? Many students don’t file the FAFSA at all, missing out on financial aid they qualify for. For example, according to the National College Attainment Network, the high school class of 2024 left nearly $4.4 billion in Pell Grants on the table by not submitting the FAFSA. Encouraging your grandchildren to file the FAFSA on time can unlock access to grants, scholarships, and other aid that does not have to be repaid.
The Power of a 529 College Savings Plan
When it comes to saving for college, one of the most effective tools is a 529 college savings plan. Here’s why many families turn to 529s:
- Tax Advantages: Your contributions grow tax-free, and withdrawals used for qualified education expenses, including tuition, fees, books, and room and board, are also tax-free at the federal level.
- State Tax Benefits: Many states offer state income tax deductions or credits for contributions to their plans. (Texas doesn’t have a state income tax, but Texas residents can still benefit from the federal tax advantages.)
- Flexibility: You can contribute a lump sum or set up recurring gifts. And if your grandchild doesn’t use all the funds, you can usually transfer the money to another family member without penalty.
- Control: You keep control of the account and decide when and how the funds are distributed.
A 529 plan is about more than just saving money. It’s about creating a flexible, tax-efficient way to support your grandkids’ education goals.
Deciding How Much to Contribute
As is usually the case, there’s no one-size-fits-all answer here, but here are a few guidelines that can help:
- Think Fairness: If you have multiple grandchildren, consider their ages and how soon each will need the money. Tuition is rising every year, so what you save for a grandchild starting college in two years won’t stretch as far as for one starting in eight years.
- Set Realistic Goals: Some grandparents aim to cover at least the first year of tuition and adjust for inflation over time. Others simply contribute what feels comfortable, whether that’s a set monthly amount or an occasional gift.
- It’s About More Than Money: No matter how much you give, the real value is the support and confidence you’re providing your grandkids as they take on their college journey.
Partnering with Grunden Financial Advisory, Inc.
Creating a lasting financial legacy takes both thoughtful planning and a clear vision of how you want to be remembered. Whether that means continuing cherished traditions, giving back to causes close to your heart, or supporting your family’s future, the Grunden Financial Advisory, Inc. team specializes in guiding families through this journey with tailored strategies that empower your younger generations.
Reach out to start the conversation.
