Difficulty: Moderately Easy
Step1
Give an outright gift to your grandchild. In most states you can give a one time gift of $11,000, or $22,000 if both grandparents are contributing, without having to pay estate or gift taxes on the sum. However, this has risks as it goes directly to the grandchild and not the school.
Step2
Send tuition money directly to your grandchild's school of choice. This is a safer investment, as you can be sure it goes to tuition and all money given for tuition is exempt from the gift tax.
Step3
Set up an educational savings account while your grandchild is young. You are allowed to contribute $2,000 a year, in most cases. However, this can also be a risky investment, as interest rates are flexible and could result in a loss of money.
Step4
Contribute to a 529 Plan. This is an increasingly popular method of contributing to tuition. This state sponsored plan is popular because you control the money, not the grandchild and the money is invested much like a mutual fund.
Step5
Consolidate your outright gift. This is also an option that will make a greater one-time impact on your grandchild's tuition. Here you consolidate five-years' worth of gifts, up to $55,000, and can give this money outright without estate or gift tax given that you do not give any more gifts for the next 5 years.
