To Your Wealth: What it really means when you’re financially supporting a college student
Helping a student pay for college can be one of the most meaningful things you do. The key is helping them build their future without losing sight of your own.
The backpacks are out, the dorms are calling, and the car is packed. Whether you’re a parent, grandparent, or generous family member helping a young person head off to college, back-to-school season hits differently when you’re the one helping pay the bills.
Supporting a student can be incredibly rewarding. But it’s also worth making sure your generosity fits into your financial life.
What does college really cost?
Tuition gets most of the attention, but it’s only part of the picture. Room and board, books, meal plans, transportation, technology, and everyday expenses can add up quickly.
Before You Commit: Sit down with your student and develop a realistic budget. Knowing the expected cost—and who is responsible for what—can help everyone make better decisions and start a healthy conversation about money.
There’s more than one way to pay
Most families use a combination of resources. Depending on your circumstances, that might include:
- Savings and current income. Start by determining what you can comfortably contribute without losing sight of retirement and your other financial goals.
- Scholarships and grants. Because these generally don’t have to be repaid, they’re worth pursuing throughout college—not just during senior year of high school.
- Work-study or a part-time job. Having some financial responsibility can help a student contribute toward college while developing valuable money-management skills.
- Student loans. If borrowing is part of the plan, understand the interest rates, repayment terms, borrower protections, and expected payments before committing.
- 529 plans. These tax-advantaged accounts can be an effective way for some families to save and pay for qualified education expenses.
Don’t overlook the 529
With a 529 education savings plan, investment earnings generally grow free from federal income tax, and withdrawals for qualified education expenses are generally federally income-tax-free. Depending on where you live, there may also be state tax benefits.
And parents aren’t the only people who can contribute. Grandparents, aunts, uncles, and other family members can participate, making a 529 one way for an extended family to help with education.
SECURE 2.0 also added another potential option for unused funds. Subject to several requirements and limitations, certain unused 529 assets may be rolled into a Roth IRA for the beneficiary. Among the restrictions are a $35,000 lifetime rollover limit, annual Roth IRA contribution limits, and a requirement that the 529 account generally have been maintained for at least 15 years.
That added flexibility can be helpful, but it doesn’t mean families should intentionally overfund a 529.
A special opportunity for grandparents
Grandparents who want to help have several choices.
Contributing to a grandchild’s 529 may be one. Changes to the FAFSA have also made grandparent-owned 529 accounts potentially more attractive because distributions from these accounts are no longer reported as student untaxed income under the current federal FAFSA methodology.
Another possibility is paying tuition directly to the college. Under current federal gift-tax rules, qualifying tuition payments made directly to an educational institution generally aren’t treated as taxable gifts. Keep in mind that this special treatment applies to tuition—not room and board, books, or other expenses.
These strategies can involve financial aid, tax, estate-planning, and investment considerations, so it’s important to look at them in the context of your overall situation.
Remember your own future
Here’s an important planning principle:
Students have potential ways to finance an education. You have fewer ways to finance retirement.
It’s natural to want to do everything possible for your children or grandchildren. But using too much of your retirement savings or taking on obligations you can’t comfortably afford may create financial challenges later.
Sometimes the most generous answer isn’t, “We’ll pay for everything.”
It may be, “Here’s what we can responsibly do to help.”
Setting expectations early—what you’ll pay, what the student will pay, and what may need to be borrowed—can make the arrangement healthier for everyone.
The bottom line
Back-to-school season is temporary, but decisions about paying for college can affect a family’s finances for years.
Whether you’re a parent figuring out how much you can afford, a grandparent looking for a tax-efficient way to help, or a family member who simply wants to contribute, college funding shouldn’t be considered in isolation. It should fit alongside retirement, taxes, estate planning, cash flow, and the other things that matter to you.
Because helping someone you love pursue their great life shouldn’t mean losing sight of your own.
Live your great life… now.
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Disclosures: This material is provided for general informational and educational purposes only and is not intended as individualized investment, tax, legal, financial, or financial-aid advice or as a recommendation of any particular strategy. Tax laws, financial-aid rules, and 529 plan provisions are subject to change, and their application depends on individual circumstances. 529 plans involve investment risk, fees and expenses, and tax consequences may apply to nonqualified withdrawals. State tax treatment varies. Before investing in a 529 plan, consider whether your home state’s plan provides tax or other benefits that may not be available through another state’s plan. Consult appropriate financial, tax, or legal professionals regarding your individual circumstances. Financial Service Group, Inc. is a registered investment adviser. Registration does not imply a certain level of skill or training.
