Paying a Grandchild’s Tuition at 71? Every Payment Comes Out of a Portfolio That Still Has to Last. These 3 ETFs Fund It on a Schedule

You promised to help with your grandchild’s tuition, and you meant it. At 71, the commitment is settled. The pressure comes from where the money lives: every tuition check comes out of the same portfolio that has to carry you through the rest of retirement. Three funds can give each payment a home based on when it comes due: the iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY), the SPDR Portfolio S&P 500 ETF (NYSEARCA:SPYM) and the SPDR Portfolio S&P 400 Mid Cap ETF (NYSEARCA:SPMD).

Pay the School Directly and the Gift Tax Rules Work for You

The tax code gives tuition-paying grandparents a useful break. Under 26 U.S.C. § 2503(e)(1), “Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter.” Section 2503(e)(2)(A) defines that transfer to include an amount paid on behalf of an individual “as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual.”

Here is what that means in practice:

• The payment goes straight to the school. Money handed to your grandchild or their parents to pass along is a different transfer.
• The law names tuition. Room, board, books, and other costs appear nowhere in that language, so don’t assume the exclusion covers them.
• Because a qualifying tuition payment isn’t treated as a gift, it doesn’t count against the annual per-recipient exclusion, which the IRS sets at $19,000 for 2026. You can still make ordinary gifts to the same grandchild separately.

Match Every Tuition Bill to a Fund by Its Due Date

A tuition commitment is a schedule of known payments on known dates, so you can fund it the same way. Money for the nearest bills sits in a stable short-term bond fund, so it’s intact when the invoice arrives. Money for bills several years away can sit in stocks, because it has time to ride out a fall. Each year, after one payment clears, you move the next payment’s money from the stock side to the stable side. The money always moves in one direction, from growth toward safety, as each date gets closer.

First, though, size the commitment so your own security is never at stake. In your own head, keep the tuition money separate from the money you live on. That number is yours to set.

SHY Holds the Money for the Next Bill

SHY tracks the ICE U.S. Treasury 1-3 Year Bond Index, a basket of U.S. Treasuries maturing in one to three years. It launched on July 22, 2002. Its 0.15% expense ratio means you keep $998.50 of every $1,000 working for you each year. Real income is currently available from short-term Treasuries: as of October 16, the 1-year yield was at 4.46% and the 2-year at 4.74%.

Know what you own. A bond fund holds bonds, but the fund itself never matures—so there is no date on which it returns a known amount of principal. Its price still moves, just far less than stocks. SHY’s dividend-adjusted price rose 1.47% over the past year and 9.73% over five years.

SPYM Covers Payments a Few Years Out

SPYM previously traded under the ticker SPLG until it changed on October 31, 2025. It tracks the S&P 500 and has done so since November 8, 2005. At a 0.02% expense ratio, it costs about 20 cents a year per $1,000 invested. Net assets were about $153.9 billion as of June 30, and the dividend yield is 1.25%.

The growth has been strong: 16.82% over the past year and 83.62% over five. But information technology makes up 32.91% of the fund, and SPYM fell 1.98% in the past week alone. That kind of swing is why next semester’s money belongs elsewhere.

SPMD Takes the Payments With the Longest Runway

SPMD holds mid-sized U.S. companies through the S&P MidCap 400 Index, with net assets of about $18.4 billion as of June 30. No single stock made up even 1% of the fund in that filing, so the risk is spread widely. Mid-caps swing more than large companies, which is exactly why SPMD only fits money for your furthest-out payments.

The fund gained 13.92% over the past year, but its five-year gain of 41.87% trails SPYM’s by a wide margin. It adds a second source of growth, and it comes with no promise of beating large caps.

Trade-Offs to Weigh Before the First Check Clears

SHY may decline in price, especially when interest rates rise. The stock funds can drop right before you planned to move money to the stable side, and the glide plan reduces that risk without removing it. The tax break covers tuition paid directly to the school and nothing broader.

For a grandparent at 71 keeping a multiyear promise, these three funds turn an open-ended worry into a calendar. The next bill is covered by bonds, later bills have time to grow, and your own retirement money stays where it belongs.

Contact [email protected] for any questions or corrections.