Grandparents seeking to help grandchildren pay for college costs may contribute in several ways. Some accounts, such as a 529 college savings plan, can benefit the grandchild as well as provide a tax benefit for grandparents.
Here are some of the options and considerations:
Understanding the tax implications is the first step in determining which strategy is right for an individual’s financial situation. It’s important to consult with a financial advisor or tax expert when making decisions that will have an effect on your overall financial plan. For further details on how college savings may affect taxes and financial aid, read Putnam’s investor education piece, “Strategies to make the most of college savings.”
The earnings portion of any withdrawal not used for qualified higher education expenses is taxed at the recipient’s tax rate and is subject to a 10% additional tax.