Every grandparent wants what’s best for their grandchildren. For most that includes planning for a college education. Over the last 10 years, college tuition has increased an average of 5% every year. Those grandkids are going to need all the help they can get. Let’s take a look at some saving options.
The most popular savings plan currently is a 529 plan. This plan lets you save up to $200,000 per grandchild without paying any estate or gift taxes. You AND your spouse can contribute up to $70,000 without going over the taxable gift cap. These accounts are very similar to a 401k or an IRA but offer fewer choices for your investments. A 529 plan also gives you the flexibility to move funds between beneficiaries if one of your grandchildren decides college isn’t in their best interest.
State prepaid tuition also falls under the 529 plan. This allows you to pay tuition for a public college at its current rate. This price is locked in and tuition increases will not be a factor.
Other options include setting up a trust. Trusts require a custodian to watch over the account until the beneficiary reaches the age of majority. The age of majority in Alabama is nineteen, but it varies from state to state. Unless a trust is specifically designated for college, you risk the trustee doing whatever they please with that money. These stipulations can be built in when the trust is formed and are governed by the custodian. Once money is placed into this account, it legally belongs to the trustee.
Savings accounts offer a more conservative option. While a 529 plan and a trust offer more growth opportunities, a traditional savings account will not lose value. As these are long term investments in a child’s future, certificates of deposit offer higher interest rates and will give you a better return on your initial investment.
Whatever investment vehicle you choose, get started today. Saving money takes time. It may seem like those grandchildren are young now, but they will grow up before you know it.