Grandparents - Funding a Grandchild's College Education  Employing the Grandchild One of the best methods of helping fund a grandchild's college education is to employ the grandchild in the grandparent's business.  The child must be a legitimate employee of the grandparents or the grandparent's business.  By employing the grandchild, income and assets of the grandparents will be shifted to the grandchild.  In addition, the grandchild will learn the value of work. Advantages are:  (1) the earned income of the grandchild is not subject to the kiddie tax rules, (2) the grandchild can utilize his/her full standard deduction on his/her tax return, (3) the wages paid to the grandchild can be deducted by the grandparent's business, and (4) the earned income makes the grandchild eligible for a regular IRA or Roth IRA. Disadvantages are:  (1) negative affect on financial aid (any income over $2,440 will be assessed at 50%), and (2) payroll taxes will have to be paid on the grandchild's wages. Loans to the Grandchild Loans to the grandchild (or parent) may be a useful short-term method of funding a grandchild's college education.  If a grandparent wants to provide a grandchild with more funds than the annual $11,000 gift tax exclusion, a loan could be made to the grandchild.  The grandparent could then forgive the loan after college years. Advantages are:  (1) control of the asset is not lost, (2) the loan proceeds do not affect financial aid, (3) the loan balance can be forgiven after college years, and (4) subject to certain limitations, the loan can be interest-free or below-market rates. Disadvantages are:  (1) the loan will not reduce the grandparent's estate, (2) the loan will generally not reduce the grandparent's income tax liability.   Return to Education Startegy