3 Key Ways You Can Help a Child or Grandchild Pay for College
Options such as 529 plans, education savings accounts and tax-free gifts can ensure you don’t carry a child’s student loan debt into your golden years.


As college costs continue to rise, it’s becoming increasingly difficult for students to pay for it themselves. The total student loan debt in the United States has risen to a staggering $1.75 trillion. This has led many parents and grandparents to want to help carry a portion of their child’s or grandchild’s college debt. They shouldn’t jeopardize their own financial future by entering retirement with someone else’s student loan debt, though.
Even so, the number of adults over the age of 62 with student loan debt has reached a startling 2.4 million borrowers. If parents and grandparents plan on helping to pay for college, they need to plan ahead to stay debt-free in their golden years. There are many ways they can start planning now to help with college costs while still saving for their retirement.
529 plans offer tax advantages
529 plans are investment accounts that can be used to pay for education for a specific beneficiary. Choosing a 529 plan also comes with tax benefits. It will grow federal tax-free and will not be taxed when the money is taken out. It’s important to note that you can use a 529 plan from any state to help cover education expenses in any other state. However, depending on the state you live in, you may qualify for even more tax deductions with a 529 plan. There are seven states that provide a state income-tax break for any contributions to a 529 plan: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania. There are no contribution limits for 529 plans, but there are limits for the tax deductions. These plans can be used for more than just college tuition.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For example, they can help cover student loan repayments and college expenses such as books or meal plans. You can even use them to help pay for K-12 tuition costs. While a good option, 529 plans do come with a few disadvantages. If you are looking into financial aid for college, 529 plans can work against you. You can also run into higher fees with these plans. These downfalls could be why many are hesitant to use these plans for college.
Educational savings accounts are a little different than 529 plans
A Coverdell education savings account (ESA) is very similar to a 529 plan. The earnings in this account can grow tax-deferred, and withdrawals are tax-free when used for educational purposes, as they are in a 529 plan. However, the beneficiary will have to pay taxes on any distributions that exceed their qualified educational expenses. You can contribute only $2,000 per year, per beneficiary, so if you exceed that amount, the rest will be taxed. While very similar, there are a few differences between an ESA and a 529 plan. Contributors must earn less than $110,000 annually, they cannot contribute to the account after the child turns 18, and the money is automatically distributed when the beneficiary turns 30. An ESA may be a better option than a 529 plan if the contributor wants to give the account over to the beneficiary as they grow older.
Tax-free gifts are an easy way to go
Grandparents can also simply give cash directly to either the child or parents. To avoid the federal gift tax, you can make a tax-free cash gift of up to $16,000 per recipient in 2022. This means if you give away anything less than $16,000 to an individual, you and your beneficiary do not have to report that to the IRS. If you decide to go this route, make sure you discuss the exact tuition and any other college expenses with your grandchild or child, and then form a detailed plan on where exactly the money will go. This will help make sure that the money you are giving is going toward college expenses, such as tuition, rather than something else.
Help your family the smart way
No matter if you’re helping save for a family member’s college expenses or saving for retirement, consulting with a financial planner should be your first step. They can help you come up with the right plan for you to save for college, retirement and everything in between.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Tony Drake is a CERTIFIED FINANCIAL PLANNER™ and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.
-
Can Trump Fire Powell? A Supreme Court Case Could Decide
Presidential posts threaten to overwhelm decades of precedent and tradition, whatever the nine justices decide.
By David Dittman
-
Do You Need an AI Agent in Your Life?
AI agents promise to be the next big thing in artificial intelligence, but what exactly do they do?
By Tom Taulli
-
SRI Redefined: Going Beyond Socially Responsible Investing
Now that climate change has progressed to a changed climate, sustainable investing needs to evolve to address new demands of resilience and innovation.
By Peter Krull, CSRIC®
-
Here's When a Lack of Credit Card Debt Can Cause You Problems
Usually, getting a new credit card can be difficult if you have too much card debt, but this bank customer ran into an issue because he had no debt at all.
By H. Dennis Beaver, Esq.
-
Going to College? How to Navigate the Financial Planning
College decisions this year seem even more complex than usual, including determining whether a school is a 'financial fit.' Here's how to find your way.
By Chris Ebeling
-
Financial Steps After a Loved One's Alzheimer's Diagnosis
It's important to move fast on legal safeguards, estate planning and more while your loved one still has the capacity to make decisions.
By Thomas C. West, CLU®, ChFC®, AIF®
-
How Soon Can You Walk Away After Selling Your Business?
You may earn more money from the sale of your business if you stay to help with the transition to new management. The question is, do you need to?
By Evan T. Beach, CFP®, AWMA®
-
Two Don'ts and Four Dos During Trump's Trade War
The financial rules have changed now that tariffs have disrupted the markets and created economic uncertainty. What can you do? (And what shouldn't you do?)
By Maggie Kulyk, CRPC®, CSRIC™
-
I'm Single, With No Kids: Why Do I Need an Estate Plan?
Unless you have a plan in place, guess who might be making all the decisions about your prized possessions, or even your health care: a court.
By Cynthia Pruemm, Investment Adviser Representative
-
Most Investors Aren't as Diversified as They Think: Are You?
You could be facing a surprisingly dangerous amount of concentration risk without realizing it. Fixing that problem starts with knowing exactly what you own.
By Scott Noble, CPA/PFS