Labor Day is behind us, and the kids are off to school. And, many parents, including three of us at SWA, have children in college. Years of planning and saving don't always get you to a lofty goal of paying for that college education. Let's face it, saving for retirement, let alone college, can be difficult. In some cases, we see grandparents step in to help cover the gap when the parent and student finances just don't meet the mark.
If not done carefully, the grandparents intended "help" can actually hinder. We see grandparents saving to 529 plans (for the benefit of the college student) or planning gifts of appreciated assets. Both are quite generous and well-intended, but both have a hidden "gotcha."
For example, using a grandparent 529 plan can negatively impact the amount of financial aid available to the student. Many grandparents save to the 529 plan as their 529 plans don't show up on the student's financial aid form (i.e. FAFSA). But, when the funds are disbursed from a 529 plan, those funds show up on the form, limiting available aid for the student.
The same is true In the case of gifted assets. Retired grandparents may be able to sell their appreciated asset at attractive capital gains rates (as low as 0% federal tax), but these assets too will show up on the financial aid form, again, limiting aid for the student.
This doesn't mean that grandparents can't utilize these tools, but to avoid the "gotcha" they need proper planning. With proper multi-generational planning, the grandparent's 529 plan and gifted assets can avoid the negative impact on the student's financial aid form. Let us know if you would like assistance in this area, and we can develop a strategy to optimize those gifted assets.