College Planning with Help from Grandparents!

College Planning with Help from Grandparents!

When creating a college plan, it is a good idea to include grandparents early in the planning process. College is a big expense, so having a village can be helpful!

Talking about money can feel uncomfortable. Grandparents may be reluctant to offer their support because maybe they are not sure of the best way to help or perhaps, they are not sure if their support is needed. On the other hand, parents may feel uncomfortable asking grandparents to quantify their commitment, it feels like asking for money (yuck!). The lack of communication leaves uncertainty and a missed opportunity to potentially reduce the cost of college and have a solid college plan. If you are a grandparent or parent out there reading this, I encourage you to be brave and start the conversation with your family!

There has been a major rule change regarding grandparent owned 529 plans which has completely flipped the script.

The old rule:

If a grandparent owned 529 plan was used to pay for a grandchild’s college, that money was counted as income received for the student on the FAFSA. Which reduced financial aid eligibility for the student.

Old action: As a result, grandparents contributed to parent owned 529 plans and grandparent owned 529 plans were used only to fund the Junior & Senior year of college to avoid reporting the income on the FAFSA.

The new rule:

Grandparent owned 529 plans are not reported on the FAFSA at all starting in 2024, so they have no impact on a student’s financial aid calculation.

New action: It now makes more sense to have a grandparent owned 529 plan than a parent owned 529 plan! A parent owned 529 plan will get counted as a parent asset on the FAFSA, aid will be reduced by 5.64% of the account value. Let’s work out the math, if you have $100,000 in a parent owned 529 plan, then student aid will be reduced by $5,640, over 4 years that is over $20,000!

Not all grandparents can contribute financially to a college plan, but they can still help by being a trusted family member to implement the best saving strategy to preserve financial aid eligibility and possibly reduce the cost of college. Grandparents can be the 529 plan account owner to keep the asset from being reported on the FAFSA. There are no restrictions on who can contribute to a 529 plan. Grandparents, parents or anyone else can contribute to the grandparent owned 529 plan on behalf of the beneficiary. As the account owner the grandparent will have administrative responsibilities, but parents and students should plan on helping them navigate account management if necessary.

Use these tips to get the college funding conversation going with your family:

  1. Be honest, clear, and prepared.
  2. Discuss why it would be helpful to join forces to save for college.
  3. Share budgets and make contribution commitments.

Families working together to educate kids is a beautiful thing! It worked in my family, grandparents helped fund college for both my boys. I am so grateful that with their help we were able to use our resources for all the other things in life.

Vida Jatulis
Vida Jatulis

Vida joined our MainStreet Financial Planning team in 2022. She utilizes her life and work experiences to help clients develop an action plan for a vibrant and healthy financial life. Vida is a CERTIFIED FINANCIAL PLANNER™ professional with a Master of Science degree in Investments and over 15 years of experience as a Financial Planner, Wealth Advisor, Pension Consultant, Trust Officer, and Portfolio Manager. In addition, Vida has personal experience with struggling and succeeding to reach milestones such as purchasing a home, putting kids through private school, saving for college, achieving debt free status, saving for retirement, raising a family on a single income and much more.

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