Money Talks News may earn commission or revenue through links in the content below. Our editorial team independently selects all products. Compensation does not influence our recommendations.
Imagine getting a note like this:
Our grandson starts college next fall, and we want to help. We were thinking of just writing him a check for $40,000 a year. Is that the smartest way to do it? — Peggy and Don
Peggy and Don are made up. But it’s a real question, and how you send the money matters.
I’ve been a CPA since 1981, so here’s the short answer: don’t just write the check. The rules reward grandparents who send the money the right way.
In 2026, you can give up to $19,000 to any one person without it counting as a taxable gift, and each spouse gets their own exclusion, according to the IRS. (1)
Tuition paid straight to a college gets even better treatment. (2) And a change to the federal financial aid form means grandparent help is less likely to hurt a student’s aid eligibility, CNBC reported. (3)
Here are 5 smarter ways to help.
1. Know the $19,000 line
The annual gift exclusion is $19,000 per person in 2026. (1) Because each spouse is entitled to their own exclusion, Peggy and Don together could give their grandson $38,000 this year without making a taxable gift. (1)
If the money comes from just one of them, they’ll need to file a gift tax return to split the gift. (2)
A $40,000 check would be $2,000 over. That’s not a disaster. It means filing a gift tax return, (2) and the extra $2,000 counts against a lifetime exclusion that is $15 million in 2026. (4) But there’s a cleaner way to do this.
2. Pay the tuition bill directly
Under IRS rules, the gift tax doesn’t apply to tuition you pay on someone’s behalf, as long as the payment goes directly to the qualifying school and it’s for tuition. (2)
That doesn’t cover books, supplies, or room and board. (2) But it means Peggy and Don could pay the tuition bill straight to the college and still give their grandson up to $38,000 on top of it for other costs, without a taxable gift.
The key word is “directly.” Hand your grandson the money and let him pay the school, and you lose this break. The money counts against your annual exclusion instead.
If you’re moving this much money around in retirement, it pays to get a second set of eyes on the plan. This is the perfect opportunity to talk to a fiduciary advisor.
Services like SmartAsset offer a free matching service that pairs you with up to three fiduciary financial advisors, all legally required to put your interests first.
They can help with tax savings, investment advice, Social Security strategies, and all kinds of planning gaps you’d never see alone.
To use the service, expect a questionnaire of about 10 minutes. You’ll be asked for a phone number near the end: provide it, but you control whether and when you respond.
SmartAsset provides the match, not the advice. It’s built for people with $100,000 or more in investments.
Get matched with a fiduciary advisor free.
3. Think about a 529 plan, and front-load it
If your grandchild is younger, a 529 college savings plan lets you get money working years before the first tuition bill.
There’s a special rule for big contributions. The IRS lets you elect to treat up to $95,000 of a 529 contribution for one person as if you made it evenly over five years, reporting one-fifth each year. You make the election on a gift tax return, Form 709. (2)
In plain English: you can put five years’ worth of annual gifts for one grandchild into the account at once.
Quick gut-check — if your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and writing about money since before the internet existed. Sign up for the free Money Talks Newsletter and get expert advice that’s been tested by time.
4. Grandparent help counts less on the FAFSA than it used to
Under the old federal aid form, the FAFSA, money paid out of a grandparent-owned 529 plan counted as untaxed income for the student, CNBC reported in 2024. (3)
On the new form, students no longer have to answer questions about contributions from a grandparent. (3)
One catch: colleges may still take some grandparent contributions into account on a second form, the CSS Profile, when they award their own aid. (3) Ask the school before you pay.
5. Put your own retirement first, and put the plan in writing
Generosity is wonderful. But your grandson can borrow for college. You can’t take out a loan to pay for your retirement.
So decide what you can afford to give without putting your own future at risk. Then make sure your will or trust lines up with what you’re doing, so nobody is confused later about who was supposed to get what.
A will, a trust or both can spell out who gets what. A will can be yours in minutes for $199. A trust goes further, controlling how and when heirs inherit, and be had starting at just $499.
My honest take
Peggy and Don’s instinct is a good one. Helping a grandchild through college so they emerge without a pile of debt is one of the best uses of money I can think of.
But how you send the money matters almost as much as how much you send. Pay tuition directly to the school, stay under the annual limit for everything else, and check with the college’s aid office before any money moves.
Do it right, and the money goes where you meant it to go.
Add a Comment