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Create a Legacy for Your Grandchildren

Filed under: Retirement

Back view of grandfather and grandchild walking in a nature path

Grandchildren are one of our greatest joys in life. As the saying goes, we can spoil them all we want and then give them back to their parents! But of course you don’t actually want to spoil your grandchildren; you want to give them the opportunity to earn a better life for themselves! Perhaps the most meaningful gift you could ever give to your grandchildren is a college education, because it is a gift that will benefit them for the rest of their lives.

If you’re thinking about helping your grandchildren pay for their college educations, you’re in good company. According to a recent study by Fidelity Investments,53 percent of grandparents are saving or currently paying for a grandchild’s tuition.

Before you open a savings account, it would pay to do some research on your different options. Some college savings plans provide better benefits than others. Depending upon your financial situation or that of the child’s parents, one plan may stand out as the best choice.

If you want to lower the value of your taxable estate while also providing a college fund for your grandchildren, check out the benefits of a 529 plan:

● Once your child enrolls in college, he or she can take withdrawals to pay for tution, books, supplies, fees, and other approved expenses free of income taxes.
● You remain in control of the account. You can decide upon withdrawal amounts, and you can even change the beneficiary. This is a good option to have if one grandchild receives a full scholarship to college and you need to use the money for another grandchild’s education.
● The plan offers a range of investment options so that you can invest according to your preferences.
● You can make a contribution of up to $70,000 while avoiding the federal gift tax. Talk to your financial advisor or accountant about this complicated aspect of 529 plans.
With regard to financial aid, be careful with your 529 plan disbursements. If the plan is owned by a grandparent, it is not counted as an asset when the student applies for federal financial aid. However, once disbursements begin, they are counted as income. If disbursements are large, the student may not qualify for financial aid. Consider all of these issues carefully when your grandchild is comparing different schools, tuition rates, scholarship offers and financial aid packages.

If you have questions about setting up a 529 plan for your grandchild’s college education expenses, talk to your financial advisor.