For families with substantial assets, helping a grandchild through college isn’t much of a debate. The question surrounds how to structure help like financial gifts for grandkids so they can do what you intend.
A rule change that took effect with the 2024–25 federal aid cycle reshaped the answer, and it remains in force for 2026–27. Yet many families are still operating from advice written before it.
The Rule That Changed and Why It Matters
Under the old FAFSA, a grandparent who paid tuition from a 529 account created a problem for the student. The distribution counted as untaxed student income the following year, assessed at up to 50 cents on the dollar. A $10,000 payment could cut the next year’s aid package by $5,000. Advisors responded by telling grandparents to wait until senior year or to route money through the parents.
That timing puzzle is gone. Under the 2026–27 FAFSA, distributions from grandparent-owned 529 plans are not reported as untaxed student income at all. The account value was never a reportable asset on the FAFSA. Federal aid formulas now look past these accounts entirely. By contrast, a parent-owned 529 still appears on the FAFSA and is assessed at up to 5.64% of its value each year.
There is a caveat, however. Roughly 200 to 300 private colleges also require the CSS Profile, and institutional aid policies vary by school. If a grandchild is applying to selective private institutions, a call to the financial aid office before a large contribution is time well spent.
Three Structures, Three Different Jobs
Let’s explore the most common funding structures.
Fund a 529 You Own
Contributions of up to $19,000 per beneficiary in 2026 fall under the annual gift tax exclusion, or $38,000 from married grandparents, and the amount leaves your taxable estate. You keep control of the account. Minnesota adds a wrinkle in your favor: the state’s education savings subtraction applies to contributions to any state’s qualifying plan, regardless of who owns the account or who the beneficiary is, at up to $1,500 (or $3,000 for married filing jointly).
Superfund It
You can front-load five years of annual exclusion gifts into a single contribution ($95,000 for an individual, $190,000 for a couple in 2026) under IRC § 529(c)(2)(B). However, this consumes your annual exclusion to that beneficiary for the next four years, and it requires Form 709.
Pay Tuition Directly to the School
A payment made directly to an educational institution qualifies for an unlimited exclusion under IRC § 2503(e), and there’s no gift tax or form. Two constraints govern it. The exclusion covers tuition only; room, board, and books fall outside it, though your $19,000 annual exclusion is still available for those. And the payment must go to the institution. Money handed to a grandchild or a parent to pay tuition is a regular gift, subject to the normal rules.
These tools stack during college planning. A grandparent could pay $50,000 of tuition directly to the college and still make a separate $19,000 gift in the same year.
Financial Gifts for Grandkids: Where the Real Decision Sits
The mechanics are straightforward once you see them. The harder question is what the money is for.
Direct tuition payments move the largest sums with the least friction, which suits an estate where reducing the taxable base is the priority. A 529 does something different: it creates a visible, named commitment that a grandchild grows up knowing about, and it keeps the assets under your control if circumstances change.
Leftover funds can now roll into the beneficiary’s Roth IRA but are subject to a 15-year account age requirement, annual Roth contribution limits, and a $35,000 lifetime cap per beneficiary, which softens the old worry about overfunding.
Families who treat this as a piece of their broader plan rather than a series of one-off checks tend to make cleaner decisions. That means coordinating with the parents’ own college planning so that gifts complement rather than duplicate, and looking at how education gifts sit alongside the rest of your estate.
Laurel Wealth Planning’s integrated planning process treats questions like this one as part of a whole rather than in isolation. For families thinking across generations, becoming generational wealth builders starts with what you want the money to accomplish.
Giving financial gifts to grandkids carries weight beyond the dollars. Getting the structure right is what lets the intent come through. Contact an advisor at Laurel Wealth Planning to get guidance.
To schedule a complimentary meeting, email laurel.wealthplanning@laurelwealthplanning.com or call (952) 854-6250. Find out whether the Laurel Wealth Planning team is the right financial advisor for you based on your wants and needs.
Frequently Asked Questions
Do grandparent 529 distributions still hurt financial aid in 2026?
No. Under the 2026–27 FAFSA, distributions from grandparent-owned 529 plans are not reported as student income. The account itself was never reported as an asset. Some private colleges using the CSS Profile may treat these funds differently, so contact the school’s aid office before making a large contribution.
What is 529 superfunding?
A one-time contribution of up to $95,000 ($190,000 for a couple), which is treated as five years of annual exclusion gifts and reported on Form 709. It uses your annual exclusion for that beneficiary for the following four years.
Can Minnesota grandparents claim a state tax benefit for 529 contributions?
Yes. Minnesota’s education savings subtraction applies to contributions to any state’s qualifying 529 plan, regardless of who owns the account. The subtraction is up to $1,500, or $3,000 for married filing jointly. A separate credit exists for filers meeting income guidelines, and you cannot claim both.
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