As parents, we understand the value of a college education. But what happens once our children are grown and have children of their own?
As a grandparent, you may want to help your grandchildren save for their education. Luckily, there are tax-advantaged vehicles available to help grandparents save for higher education.
For instance, 529 plans allow up to $250,000, in aggregate, to be set aside for a single grandchild’s college education. Each grandparent can contribute up to $55,000 without incurring gift tax by using the gift-tax exclusion over five years. As long as your grandchild uses the money in these accounts for qualified higher education expenses, the withdrawals are federally tax-free.
Grandparents or other sponsors can also open a Coverdell Education Savings Account (ESA) to pay for a grandchild’s or other beneficiary’s college education. You can contribute $2,000 a year, after taxes, to each beneficiary’s ESA. In addition to being used federally income tax free to pay for qualified higher education expenses, these funds can also be used tax free for qualified educational expenses paid to attend secondary schools.
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( Published on December 3, 2008 in Asian Journal Los Angeles p. B5 )
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