Tax Breaks for Grandparents Who Help With College Costs
If you pay college costs for grandkids, you’re not eligible for the most popular credits and deductions. But you may get a break if you save in a 529 plan.

I’m going to be paying my granddaughter’s medical school tuition. I’ve heard that if I make the payments directly to the school I can get some sort of tax break. Is that true?
Several income tax breaks are available for college and graduate school tuition, but you can usually take them only for yourself, your spouse or dependents you claim on your tax return (see A Tax Break for Grad School). You’re probably thinking about the special rule that excludes direct payments of tuition (but not room and board) to educational institutions from the $14,000 annual gift-tax limit. This exclusion applies to anyone making the tuition payment, and it’s popular with grandparents who want to get some extra money out of their estate without having to file a gift-tax return. To qualify, you must pay the school directly; you can’t give the money to your granddaughter first. For more information, see Tax-Smart Ways to Help Your Kids (and Grandkids).
Two-thirds of the states offer a state income tax break for 529 contributions -- and grandparents who make contributions are eligible. You generally need to contribute to your own state’s 529 plan to get the tax break (although five states -- Arizona, Kansas, Maine, Missouri and Pennsylvania -- allow a deduction for contributions made to any state’s plan). Some states let anyone take a deduction for their contributions; others give the tax break only to the owner of the account. In the latter case, it’s a good idea for parents and grandparents to open separate accounts for the child so that both can deduct their contributions. (There’s no limit on the number of 529 accounts that can be open for one child, and there’s no maximum age to use the money.) Your granddaughter could use the money tax-free for medical school tuition, room and board, and mandatory fees. See Give the Gift of a 529 Plan Contribution for details.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For more information about tax breaks for education, see IRS Publication 970, Tax Breaks for Education, and the IRS’s Tax Benefits for Education Information Center for details.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Travel trends you can expect this summer
The Kiplinger Letter Domestic trips will trump foreign travel amid economic uncertainties, though some costs are down.
-
Missouri Leads Capital Gains Tax Repeal: Will Your State Follow?
State Tax As one state becomes a test case, policymakers and taxpayers across the U.S. will be watching closely to see what happens next.
-
Here's How the Child Tax Credit Could Increase Under Trump
Tax Credits House Republicans released details on President Trump’s ‘one big, beautiful bill,’ including an increased child tax credit.
-
New Overtime Tax Deduction Proposed for Millions Working Extra Hours
Tax Law Some lawmakers and President Trump want to offer overtime tax relief. But will a tax deduction or an exemption help you most?
-
Big Tax Deduction Increase Proposed for Those Over Age 65
Tax Deductions A new bipartisan bill and a tax plan from the House GOP could mean bigger retirement tax savings to offset taxes on Social Security and high prices.
-
New HSA Contribution Limits Are Set for 2026: What to Know Now
Health Savings The IRS says Health Savings Account contribution limits will increase again next year due to inflation.
-
Retirees: Don’t Miss These Valuable State Tax Breaks in 2025
Retirement Planning Selecting the right state for retirement can significantly impact your financial well-being.
-
Trump’s Tax Cut Risks Your SNAP, Medicaid Benefits
Tax Cuts The GOP budget blueprint could slash lifesaving programs for millions of U.S. households.
-
Missed Tax Day? Nearly One Million Taxpayers Still Can File and Claim Valuable Tax Refunds
Tax Refunds As many as one million taxpayers could be missing out on a significant tax refund.