If you're giving $20,000 directly to your grandchild outside a 529 plan, it would have no impact on your 529 plan withdrawals that I can think of. You would still be able to make withdrawals in proportion to the qualified higher education expenses incurred by the beneficiary named on the 529 account.
Giving a large sum like this to a student who may still be a dependent - even if they're just using the funds to pay for their schooling in-turn - may have tax consequences for yourself and them, and could raise red flags with any banks involved concerning AML law since the amount involved is over $10,000. So you might want to consult with a tax professional before gifting.
The other thing I might suggest is contacting the 529 plan provider for guidance concerning coordinating withdrawals. They might not be able to provide guidance, but can certainly tell you facts around what you can and cannot do regarding the specific plan you are using.
Brian Boswell VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.