The Generous Generation and Saving for Grandkids’ College

Seventy two percent of grandparents polled in a 2014 Fidelity survey felt it was important to help pay for grandchildren’s’ educations.  Wow! That is a very large number.  For those who are in a position to chip in a little (or a lot) for college for their grandchildren, here are a couple of ideas.

  1. Open a 529 in your home state.

    • This option allows you to take a state income tax deduction (where offered) on 529 college savings deposits.
    • You can open an account with yourself as the owner and a grandchild as the beneficiary. This works very well if you are worried about the spending habits of your children and want to protect the money for its intended use.
    • 529 plans have easy, target date investment options so you don’t have to stress about choosing a mix of mutual funds.
    • You can change the beneficiary to any relation out to first cousin. This is nice if Grandchild #1 is more interested in body piercings than Bachelors of Arts.  The money can be used by your other grandchildren.
  1. Open a Uniform Transfer to Minor Account (a.k.a. UTMA or Custodial Account).

    • For those of you who have appreciated securities you would like to gift to grandchildren or just like more investment flexibility, this may be a more interesting option for you.
    • Money put into these accounts is an irrevocable gift to that child, so there is no changing your mind as in a 529 account.
    • UTMA accounts can be used for any benefit of the child, including private high school, summer camp, car purchase, wedding, or help buying a new home. This is more flexible than the college-only 529 account.

There is no right or wrong account to use.  Each has its benefits and restrictions.  Many people use a combination of both.  For a nice table view of the differences, check out this page on Fidelity’s website:

https://www.fidelity.com/saving-for-college/compare-plans

 

If these topics sound like they would be of interest to you, your employees, sales conference, or professional organization, contact me at 303-324-0014 or kristi@sullivanfinancialplanning.com for more information.

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