Planning early for your children’s and grandchildren’s education can help you cover these expenses in a tax-efficient manner. Read more on saving for education.
A range of choices gives you great flexibility as you save for a child’s or grandchild’s education.
In 2025, you can give each beneficiary up to $19,000 per year (or $38,000 for married couples) without paying gift tax or using any portion of your lifetime exemption. This amount is known as the annual gift tax exclusion.1
Prepaying tuition
Many K–12 private schools, and some colleges and universities, allow parents and grandparents to prepay tuition. This is especially useful for grandparents who wish to fund their grandchildren’s education but are concerned they may not live long enough to do so. Note that if a student changes schools, the prepaid tuition could be lost.
Assessing the impact on financial aid
Assets owned by a child, such as custodial accounts, will reduce eligibility for need-based financial aid more than assets owned by a parent. Assets owned by a grandparent or trust may not be counted at all.
As of December 2023, FAFSA does not ask about distributions from grandparent-owned 529 accounts, which therefore should not count against the student for financial aid purposes. Still, you should review the FAFSA carefully and work with a financial aid consultant or other professional to confirm that distributions from a grandparent-owned 529 account won’t affect the student’s financial aid.3
Education planning options
Crummey trust
UTMA or UGMA (custodial) account
529 plan
Minority trust
The bottom line
As you can see, there are different options available when it comes to planning for education costs for your loved ones. The most suitable option for you and your family – whether it’s making payments directly to the educational institution, setting up a 529 or UTMA account, or using a combination of these approaches – depends on your unique situation and goals.
Your education funding choices can have a significant impact on your taxes and estate plan. With this in mind, you may want to seek guidance from professionals who can help you develop a plan to assist with your family’s educational goals and financial future for generations to come.
