Why Grandparents Should Pay for College

The cost of college is looking a little too high? Maybe you aren’t sure how you can ever afford four years of a rigorous collegiate education for your kids. Even public schools are looking pretty pricey these days. What to do?

Well, your parents sure look to be living pretty luxuriously in their retirement. Maybe they could pay for your children’s college.

That might be a fairly good idea, argues Robyn Post in a Reuters piece:

Generosity can also be channeled toward significant tax and estate planning benefits for the grandparents.

A 529 plan… provides for tax-free distributions for college. It also allows grandparents to give the funds to another grandchild if the intended recipient does not go to college or need the money.

And it’s good for them, too.

Grandparents may also be eligible for state income tax deductions when they make 529 contributions – they are available in 34 states and the District of Columbia. They can also take required minimum distributions from their IRA accounts and transfer those funds to the 529 plan, where they can continue to grow tax-deferred.

According to the article, about half of grandparents plan to contribute money toward college. A third say they plan to pay more than $50,000.

This makes some degree of sense, since back when they were sending kids to college, and attending it themselves, it was a lot cheaper. And then, partially as a result of tax revolts by people who are now old, not to mention their escalating health care and pension costs, states began to cut funding for state universities, and so higher education got expensive.

It’s probably best not to use that last paragraph if you go to ask your parents if they might be interested in contributing to your child’s college education. It’s still their money you’re asking for, after all.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer