Q. I have three grandchildren ages 6, 4 and 2. I want to save for them for college. What's the best way, and also how can I make sure it doesn't hurt financial aid?
-- Trying to do good
A. Your grandchildren are lucky to have you, and we're glad you're aware of the possible financial aid implications.
Many well-meaning grandparents select options that would have a negative impact on the child's chances for financial aid, and by the time the child is applying to schools, it's too late to make changes.
Jody D'Agostini, a certified financial planner with AXA Advisors/The Falcon Financial Group in Morristown, recommends you use a 529 plan.
"If you own a 529 account for your grandchildren, it will not affect their eligibility for need-based financial aid," she said.
But when you start to use the money for their support, it could have a negative effect in the subsequent year.
"The 529 accounts that you own as a grandparent are not reportable on a Free Application for Federal Student Aid Betvole (FAFSA) financial aid application," she said. "Once you start to provide financial support to the student, it would be reported on the next year's FAFSA."
D'Agostini said the financial aid formula counts student income just as it counts student assets, albeit in different percentages and allowances. Most financial aid offices include the grandparent contribution as student income even though they are not reportable for federal income taxes. she said.
"If you held off using the contribution until the final year of college for your grandchild, then this would not be an issue," she said.
Be sure to plan ahead with the grandchildren's parents to be sure you're all working on the best strategies for your family.
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com's weekly e-newsletter.
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