A recent survey by Fidelity investments observed that more than half the investors for college saving funds are grandparents. With education shifting into a financial burden for parents, grandparents or older relatives are stepping up.
The College Board posted a report identifying that fact that private colleges in the US, on an average charge $40,000 annually. Top colleges on the hand, in any state, charge an estimated amount of $60,000 and above per annum.
More and more senior citizens are investing in their grandchildren’s education; a survey showed that they own about $250 M in almost 12 M accounts. If you are also planning to help your grandchildren get quality education, here are three great ways to do so:
- Invest with their Parents:
Most parents begin their savings for college the day their child is born and some even set up funds way before this. But as mentioned before, most people will struggle with paying regular amounts to sustain a college program even after they set up a 529 plan on their own. You can contribute to this savings plan by granting them a solid amount every month or on a quarterly basis.
This will help your grandchild get into a better college program then they would with their parent's savings. This can help avoid any federal aid cutbacks as naming funds for children in the initial years of a college education may lead to a federal “assessment” using the federal formula based on 20%. Whereas, assets in the parents’ names will get an assessment of only 5.64% including their non retirement assets.
- Property Cushion or Debt Payment:
This is not necessarily the most conventional way of saving for your grandchildren’s college funds. But it can be the cushion they may fall back on when going to college. If you have a large estate approximately worth $10.9 M and you are planning to forward this to your grandchildren through their parents, bear in mind that any gift above $28,000 (for couples) will make you liable of paying more in estate taxes every year.
If you still want to carry out this solution for funding your grandchildren for college, you need to find ways to negate the potholes in this investment. Hire a lawyer or attorney for this purpose. The property and any other attached assets should only be granted when college funds are needed.
If this does not work you can always resort to debt payment. This will keep their financial aid intact while they are receiving their education. Moreover they can take out their loans on their own and you can draft a clause for their loan repayment in your will. It is necessary that you do not co-sign any loans as this will means you will be held responsible for making payments in case your grandchildren default.
- A Gift of Education Account:
You can look for 529 plans that are offered by the state. These college saving plans are designed to be advantageous to the saver in terms of taxes. The contributions made are deemed ‘tax-deferred’ and the withdrawals made for college education, are also tax-free. If one of your grandchildren decides not to attend college this plan can be transferred to another for the same purpose. The only downside would be that in case of a withdrawal for purposes other than education you will be faced with a 10% penalty and income taxes.
Taking out 529 plans for your children and grandchildren is the most popular path that parents are taking. The tax advantages of these plans make them the right choice for anyone willing to invest in education. They are also aimed at fulfilling future needs; this means that you can begin this even before your child is born.
As grandparents, you can take out a 529 plan for your grandchild and set up an account for them at www.thegiftofeducation.com. This can be done prior to the birth of your grandchild. This account works similar to other funding accounts that allow well-wishers and members of the family to contribute to the future of the child, except this is education based.
You can easily link the 529 plan that you have taken out for the child to their Gift of Education account. This will allow anyone willing to invest to directly secure funds in the actual education plan and there is no middleman.
You can set up education saving accounts with The Gift of Education registry and gift it to the child's parents. Anyone can help with injecting funds into these accounts and college saving becomes comparatively easy due to extended external fund additions.