Grandparents often want to help grandchildren fund college and education expenses, but it’s important to think about the bigger picture when doing so. In short, the “how” matters as much as the “how much.”
Help Grandchildren by Helping Yourself First
If you benefit from good CPAs and financial advisors, you’ve already learned that the more you can strategically plan around and eliminate taxes and other expenses, the more you have to give. Don’t forget that key tenet when you look to help grandchildren fund their futures.
When it comes down to it, different funding methods carry very different gift tax, estate, financial aid, and asset control implications. Here’s a rundown of the main options:
Direct Tuition Payments
One of the simplest and most tax-efficient strategies is paying tuition directly to the educational institution. Under IRS tax code, payments made this way are exempt from a gift tax entirely, with no dollar limit and no need to use any of your annual exclusion or lifetime exemption. The catch: The funds must go straight to the school and only cover tuition — not room, board, books, or fees. It’s a clean way to move significant wealth out of your estate while your grandchild is in school.
529 Plans
Contributions to 529s grow tax-free, and grandparents can “superfund” a plan by making up to five years of annual exclusion gifts in one lump sum. But check tax laws periodically because they do change. For instance, right now, 529-owned assets aren’t counted against financial aid the way they once were, since distributions from a grandparent-owned 529 aren’t reported as student income. This “grandparent loophole” has made 529s far more attractive than they were a few years ago. Plus, currently, unused funds in longstanding 529s can be rolled over into a Roth IRA. But, in both cases, the owners and beneficiaries of the funds matter. Be sure to set up and maintain the plans thoughtfully.
Annual Exclusion Gifts
You can help grandchildren with cash gifts up to the annual exclusion amount with no gift-tax filing required, but there are a few catches. You have no control over how the money is spent, and it counts as an available resource that could affect their financial aid depending on the timing.
Trusts
For families wanting more structure, an education trust can specify exactly how and when funds are released, protect assets from a grandchild’s creditors or poor decisions, and support multiple beneficiaries over time. Trusts require more upfront legal work and ongoing administration, but they offer the most control and can be layered into a broader estate plan.
The New Trump Account
A newer, complementary option worth understanding is the Trump Account, an IRA-style savings account created for children under 18 that launched in 2026. Family members, including grandparents, can contribute up to the annual limit (currently $5,000, shared across all contributors), and eligible children born between 2025 and 2028 receive a one-time $1,000 government seed deposit. Unlike a 529, funds aren’t earmarked for education and grow more like retirement savings, with withdrawals generally restricted until age 18.
As with all financial and tax planning strategies, your individual estate size, goals, and timing matter. And in this case, to help grandchildren the most effectively, their own financial picture, goals, and level of control matter, too.
Feel free to contact us with questions, or visit us at bankler.com
Photo purchased from Shutterstock_2497145265 | September 15, 2026