Smart Strategies for Funding Your Grandchild’s Higher Education

Providing financial support for your grandchild’s higher education is one of the most meaningful ways to invest in their future. College tuition costs continue to rise, and many families in San Antonio are looking for smart ways to save. Whether you want to contribute a little or a lot, there are several tax-efficient strategies to ensure your gift goes further.

The Benefits of Helping Your Grandchild with College Costs

Higher education can open doors to better career opportunities, financial stability, and personal growth. However, tuition and other expenses can be overwhelming. By helping fund their education, you:

• Reduce their reliance on student loans
• Give them a financial head start
• Strengthen your family’s legacy
• Take advantage of tax-friendly savings options

There are multiple ways to contribute, each with different tax implications and benefits. Let’s explore the most effective options.

529 Plans: A Tax-Advantaged Way to Save

One of the best ways to support your grandchild’s college education is through a 529 plan, a special type of savings account designed for education expenses. These plans offer tax advantages, including:

• Tax-free growth: The money in the account grows without being taxed.
• Tax-free withdrawals: As long as the funds are used for qualified higher education expenses, withdrawals are not subject to federal taxes.
• Flexible contribution limits: You can contribute large amounts without triggering gift taxes by using the five-year election rule.

There are two types of 529 plans:

Prepaid or Qualified Tuition Plans

The Texas Tuition Promise Fund is a prepaid tuition plan that allows you to lock in today’s undergraduate tuition rates and schoolwide required fees at Texas public colleges and universities for future use. This can be beneficial if tuition prices continue to rise. However, these plans are typically tied to in-state schools, so if your grandchild chooses an out-of-state or private college, additional costs may apply.

529 Savings Plans

A 529 savings plan is more like an investment account, and Texas offers three tax-advantaged 529 savings plans. Your contributions grow based on market performance. While these plans offer potential for growth, they also come with some level of investment risk. It’s wise to review your options with a financial advisor before committing to a plan.

Gifting Money Directly: Understanding the Tax Implications

You can also gift money directly to your grandchild to cover tuition or other expenses. The annual gift tax exclusion allows you to give up to $19,000 per year (as of 2025) per recipient without incurring gift taxes. If you’re married, you and your spouse can each contribute, doubling the amount to $38,000 per grandchild per year.

If you prefer to make a larger contribution, you can pay tuition directly to the college. This does not count toward the annual gift tax limit, making it a great strategy for reducing estate taxes while covering education costs.

Setting Up a Trust for Education Expenses

For grandparents who want more control over how their contributions are used, an education trust may be a better option. A trust allows you to specify how and when the funds are distributed.

There are different types of trusts to consider:

• Revocable Trusts: Allow you to make changes to the trust during your lifetime.
• Irrevocable Trusts: Remove assets from your estate, potentially reducing estate taxes, but cannot be changed once established.
• Education Trusts: Specifically designed for education expenses, offering more flexibility than a 529 plan.

Trusts are a great way to ensure that funds are used for their intended purpose while also providing asset protection. Consulting with an estate planning attorney in San Antonio can help determine the right trust structure for your family’s needs.

Choosing the Right Strategy for Your Family

Every family’s financial situation is different, and the best way to support your grandchild’s education will depend on your goals, tax considerations, and level of involvement. Whether you choose a 529 plan, direct gifting, or a trust, proper planning ensures that your generosity makes a lasting impact.

If you’re ready to explore your options, our legal team at McCammon Law, P.C. near San Antonio can help you design a strategy that aligns with your estate planning goals. Read more in our article, Seven Ways Wills & Trusts Help You Leave Your Family a Great Legacy Without Great Wealth

Secure Your Grandchild’s Future Today

Investing in your grandchild’s higher education is an incredible gift, but careful planning is essential to maximize benefits and minimize taxes. Request a consultation with McCammon Law to discuss how we can create a plan that works for your family.

Key Takeaways

• 529 Accounts: Fund a loved one’s education with tax-free growth.
• Annual Gift Tax Exclusion: Gift up to $19,000 per year to each grandchild without incurring federal gift taxes.
• Trusts: Consider different types of trusts to manage and distribute assets effectively.

References: Forbes (Aug. 5, 2020) “Estate Planning Primer: Qualified Tuition Plans”  and ElderLawAnswers (Jul. 12, 2018) “Using 529 Plans for a Grandchild's Higher Education”