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Why Your Grandparents Could be Your Meal Ticket to College
Featured Author:
Mark Kantrowitz
As a nationally recognized financial aid expert, Mark has been called to testify before Congress about student aid on several occasions.
He has served as a guest columnist for the New York Times and the Huffington Post and has been interviewed regularly by major news outlets, including the Wall Street Journal, USA Today, MSN, CNN, NBC, ABC, CBS, CNBC and more.
Mark is the author of five books, including three about student aid. His most recent book, Secrets to Winning a Scholarship, helps families find and win scholarships. He is also on the editorial board of the Council on Law in Higher Education and the editorial board of the Journal of Student Financial Aid, a member of the board of directors of the National Scholarship Providers Association and a member of the board of trustees of the Center for Excellence in Education.
Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU) and holds Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU.
Follow him on Twitter at @mkant.
Mark Kantrowitz
April 21, 2009
Roth IRA
Grandparents who own a Roth IRA can name their grandchildren as primary beneficiaries. While the Roth IRA will be included in the grandparent’s taxable estate and so be subject to federal estate tax, in many cases the Roth IRA will pass to the grandchildren tax free if the total estate is less than the unused portion of the unified credit. The grandchildren can then avoid the 10% early distribution penalty and withdraw earnings tax-free even if they are under age 59-1/2. (For all distributions to be tax-free, a Roth IRA must have existed for at least five years before the distribution. Otherwise the earnings the accumulate after the contribution to the Roth IRA will be taxable.) Usually the grandchild must take a distribution of the entire amount by the end of the fifth year following the previous owner’s death. But until the grandchild takes a distribution, the Roth IRA is disregarded as an asset on the FAFSA. Distributions will count as untaxed income on the FAFSA, affecting the subsequent year’s federal student aid eligibility.
