06 Mar Ideas to pay for a grandchild’s college

 Q. I want to help pay for college for my grandkids. What’s the best way considering gifting rules, taxes and financial aid?

A. Not only are you a generous grandparent, but you’re a smart one, too.

Gifting money for college can have an impact on all the items you mentioned in your question.

College costs have been outpacing inflation and are expected to continue in that fashion, so paying for children’s higher education is a crucial concern, said Alison Williams, a certified financial planner with Stonegate Wealth Management in Oakland.

She said estimated total costs at private colleges can be more than $60,000 per year, with more than $40,000 going toward tuition. Total costs at public universities for in-state students are nearly half that.

One way to help is contributing to a 529 plan, Williams said.

529 plans are operated by a state or educational institution, and you can use it to save for college for a designated beneficiary, such as a child or grandchild.

“Given current tax law, an individual can contribute $14,000 per year to a beneficiary without gift tax consequences,” she said. “With a 529 plan, you can contribute five years worth of `gifts’ upfront.

This means a couple can contribute up to $140,000 per beneficiary without triggering a gift tax, she said.

An added perk to these plans, Williams said, is that there are no tax consequences if you roll unused funds to another member of the family.

“The major benefit of a 529 plan is that the earnings are not subject to tax when used for the qualified education expenses of the beneficiary, such as tuition, fees, books, as well as room and board,” she said.

Contributions to a 529 plan, however, are not deductible. The investment options are often limited, lack flexibility, and fees can be high, so choose your plan wisely.

Here’s why a 529 Plan is a better choice than some other options, and considerations for financial aid.

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This story was first posted in March 2015.