15. Getting Grandma to Help

Grandparents and 529s were made for each other.

—Joseph Hurley, CPA, Savingforcollege.com

When grandparents want to help with college costs, this should be the No. 1 rule that they follow: First, do no harm.

To illustrate what can go wrong if you ignore this admonition, I’m sharing the story of a middle-class family in Southern California that received a large financial gift from a wealthy grandparent. The grandfather gave each of the three children a significant amount of money that he wanted them to eventually use to purchase homes for themselves.

There was, however, an unintended consequence of the grandfather’s largesse. His gifts ensured that his grandchildren would not qualify for financial aid. One of the children had been interested in attending a private college, but if he had done so, he would have had to use that future house money to pay the tab. Rather than do that, he is attending a state school with lower costs, and his family is covering the bill.