Skip to content

#88 Using a reverse mortgage to fund a 529


For the past two years, you have been helping your son by contributing towards his oldest daughter’s college costs. You stayed away from opening a formal college savings plan, because you had heard that, as your granddaughter would make withdrawals to pay college expenses, that would have counted as “income” to her, negatively affecting her ability to qualify for student loans. Because of that drawback, instead of opening up a College Savings account, you made several substantial gifts to your son.

Now, your second-oldest grandchild (your daughter’s son) will be applying for college. You’ve  learned that, effective for  the 2024-2025 school year, grandparent-owned 529 accounts will no longer negatively impact  a grandchild’s financial aid. The more you have been learning about 529s, the more excited you are to open a plan for each of your three grandkids (including the one already in college).

The 529 feature you like best is that you can continue to control the accounts, and can even change the beneficiary if later one of the grandkids were to drop out of college.  We could even use the money for ourselves in case of an emergency.  Something you hadn’t known before is that, as joint tax filers, you are allowed to contribute as much as to $150,000 in one shot to each of the 529 accounts. While you don’t think you’re in a position to do quite that much, you would like to start a 529 for each of the two younger grandkids with $50,000 apiece, and one for the oldest grandchild with $25,000. You like the idea of reducing your estate by $125,000, yet still have access to the money in case your own needs change. Doing advance funding by selling assets, might generate a substantial tax bill from selling investment assets.

Rather than selling investment assets to fund the 529 College Savings accounts, consider using your housing wealth by entering into a reverse mortgage, using a portion of your line of credit to advance-fund the College Savings accounts. The unused portion of your loan will continue to grow, in a way providing you with two “fallback” options (the money in the 529 accounts and the remaining equity in the home).

As you work through the details of your plan with your financial planner and tax advisor, you’ll really appreciate the fact that the recent tax law change concerning 529 plans, combined with smart use of your housing wealth, can produce some very good results for both you and your grandkids.

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894