Its never to early to start saving for your grandchildren’s college education.
A story in the Wall Street Journal notes that the average cost of a four-year education is almost $170,000 and rising every year. As a result, families are looking for strategies to save for those costs.
One way, the story suggests, is to open a 529 college savings fund even before your grandchildren are born.
Anyone can open one. It is funded with after tax income, and the fund’s earnings and principal will be untaxed as long as the money goes to higher education.
The idea is especially attractive to older parents with adult children, to get the ball rolling early.
If a future grandparent starts a 529 whose beneficiary is a future grandchild, the grandparent can contribute $70,000 — five years of contributions at $14,000 a year — or up to $140,000 for the two grandparents. They still own the account but assign the grandchild, as soon as he or she is born, as the beneficiary.
The plan lets the grandparents keep control, so the kids don’t go out and use the money frivolously. One down side is that such an account can hurt a child’s chances for federal financial aid.
Also, using such funds for anything but education triggers a penalty and makes the money taxable. A special trust might be a better idea if the child is not destined for college or has special needs, the story says.
If you have questions about estate planning, feel free to call us for a consultation at (626) 696-3145.
