WHAT’S THE BEST WAY FOR GRANDPARENTS TO HELP GRANDCHILDREN PAY FOR COLLEGE?
It’s actually a pretty easy question to answer. Since 1996, IRS rules allow for the creation of a Section 529 account, in which the growth can be received tax free. So a grandparent can set aside, say, $20,000 in 2014 that grows to $35,000 when Jenny goes to college in 2030. Jenny can receive that money without any tax consequences.
Why isn’t everyone doing this? Many people are. A recent study found that nearly half of all grandparents contribute to their grandchildren’s education, and more than a third intend to give more than $50,000. With that kind of principal at stake, grandparents should give a lot of consideration to how they will do this.
A 529 Plan allows flexibility in the way funds are invested, much like a traditional retirement account. The “educational” uses are broad, allowing for things like computers and Internet access in addition to tuition and books. Also, if the intended grandchild decides not to go to college, all is not lost: The account can be transferred to another person. The only restriction is that the beneficiary must be a family member.
These are the kinds of issues a competent estate planning attorney will recommend his clients consider. After all, the goal is to help clients be wise in handling finances, not to simply create an estate plan.