gmhTODAY 16 gmhToday Sept Oct 2017 - Page 88

Helping Grandchildren with College Costs A s the cost of a college education continues to climb, more grand- parents are stepping in to help meet the shortfall of covering the expense. Helping to pay for a grandchild’s college education can bring great personal satisfaction and, with a little planning, is a smart way for grand- parents to pass on wealth. Outright Gifts By Daniel T. Newquist, CFP®, AIF® Daniel T. Newquist, CFP®, AIF® is a Principal Wealth Advisor with RNP Advisory Services, Inc., in Morgan Hill with over 20 years experience advising clients on their personal wealth and business planning needs. Investment advisory services offered through RNP Advisory Services, Inc. – a registered investment advisor. Securities offered through Securities America, Inc., member FINRA/SIPC. RNP Advisory Services and Securities America are sepa- rate entities. The Investment Fiduciary standard of care applies to advisory services only. dnewquist@RNPad- or call 408. 779.0699. Gifts of cash or securities are a common way to help grandchildren with college. However, be careful to consider that a gift of more than the annual federal gift exclusion limit—$14,000 for individuals and $28,000 for gifts made by a married couple—might have gift tax and generation-skipping transfer tax consequences. Additionally, a cash gift to a student will be considered untaxed income by the federal government’s fi nancial aid application, FAFSA, which can impact fi nancial aid eligibility. One solution is for grandparents to give the cash gift to the parent instead of the grandchild, as gifts to parents are not reported as income on the FAFSA. Another option is to pay the college directly. Tuition paid directly is not considered a taxable gift, no matter how large the payment, however payments can only be made for tuition— room and board, books, fees, equipment, and other similar expenses don’t qualify. Be mindful that colleges will often reduce a student’s college-based financial aid by the amount of the grandparent’s payment. Before sending a check, ask the college how it will affect your grandchild’s eligibility for college- based aid, scholarships or grant support. If your gift will have an adverse effect, con- sider gifting the money to your grandchild after graduation to help him or her pay off student loans. 529 Plan — College Savings Plan A 529 plan is excellent way for grandparents to contribute to their grandchild’s college education. Contributions to a 529 plan grow tax deferred, and withdrawals used for the benefi ciary’s qualifi ed education expenses are completely tax free at the federal level and generally at the state level too. Funds can be used at any accredited college in the United States or abroad. Grandparents can contribute a lump sum to a grandchild’s 529 account, or contribute smaller, regular amounts. Lump-sum gifts, allowed under special rules unique to 529 plans, are allowed up to $70,000 per individual or $140,000 for joint gifts by married couples, and avoid federal gift tax. Grandparent-owned 529 plans are not required to be listed on a student’s FAFSA application, however distributions from a grand- parent-owned 529 plan are reported as untaxed income to the beneficiary (grandchild), assessed at 50% by the FAFSA, which can impact financial aid eligibility. By contrast, parent- owned 529 accounts are reported as a parent asset on the FAFSA (and assessed at 5.6%) and distributions from parent-owned plans aren’t counted as student income. To avoid having the distribution from a gra G&VBvVBS#66VB6VB27GVFVB6RRF0FFVFrF7G&'WFg&FRS#VFFRgFW"V'bFRw&F6N( 0V"V"b6VvR&V6W6RFW&Rv&P&Rde42FfWBFW"F0f"FRw&G&VBF66FW"6vrFPvW'6bFRS#66VBFFR&VBWfW'f֖Ǟ( 26&7V7F6W2&RFffW&V@B&W"r2'FB2f6Gf6"vR&R'FW'2W"6ƖVN( 2f6W&WF&VvƖfR&W"rFP7W&RFRFVFVBvgBb7W'B2Bǐ&VVf6FW"w&F6B'WB26W &W7BFW&W7B2W"&&G&V6W6RFRƖ6F26&R6W67VBW"f6Gf6""F&fW76f"&Rf&F&Vf&Rrf6vgG2( 2"vfRW26vRvVBfRFVF2'F6R2BFVFVB2fW7FVB"FGf6Rࣃt$( "$t( "4%D4UDT$U"5D$U"#pvևFF6