Super gift in the family: Tuition help
College tuition has soared in recent decades. That's probably why more than 50 percent of grandparents say they are contributing to college expenses, or planning to, according to a 2014 survey. But those gifts may have tax implication and may affect financial aid.
529 savings plans are sponsored by almost all states, and contributions may be tax-deductible. Earnings and withdrawals are tax-free, as long as the money is used for qualified expenses—tuition, fees, room and board, and the like. Important: the money stays in the owner's control and does not count against financial aid for the student. Funds in accounts can be transferred within the family. Direct payment of tuition to the college is tax-free and does not count against the $14,000-a-year gift limit.
Custodial accounts put the money in the child's name, managed by an adult until the child reaches 18 or 21. These accounts do affect financial aid, so they have become less popular since the 529s were introduced. If a teenager is working over the summer, set up and fund a Roth IRA. Small funds will grow over the years. If a grandchild has already borrowed for college, pay off the loans.
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