Save for grandchildren’s college fund
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If my wife buys one more toy, trinket or stuffed animal for our only granddaughter their family will have to move into a bigger house. What I would like to do with this so called stuffed animal fund, is to turn it into a college savings fund. I have been looking into this and have recently read something about, what they call the 529 savings plan. What do you know about this?
Overstuffed Grandpa
Dear Overstuffed,
Sounds like your grandchild won’t suffer from lack of attention. However, given the rising cost of college in the future, she could well suffer from a lack of funds. So, I think you’re on the right track to begin saving now.
Remember that time, not timing, is the key to saving, whether for retirement or college.
Cost Increases
A grandchild born today and enrolling for college 18 years from now will face huge expenses. In the last couple of years, many colleges have seen costs climb by more than 20 percent. Nationwide, the average is closer to 10 percent the last two years. But, being optimistic and using an inflation rate of five percent, a public university that now charges $9,000 a year for tuition, fees, books, and room and board will cost nearly $90,000 for four years when that newborn enrolls there.
And that $9,000 estimate is on the low end of college costs today.
The sad truth is that many middle class, and even upper-middle class parents won’t be able to save the kind of money it will take to pay for college 18 years from now, nor will children and grandchildren be able to work their way through school. They are going to need some help, and the 529 plan you’re asking about is a great option.
A 529 plan is a state sponsored college savings plan that helps families save for future college costs. Available in every state, 529 plans can help grandparents like yourself contribute to their grandchildren’s college education in an easy, tax-free way.
Here are some of the advantages: You get unsurpassed tax breaks for contributions. Your investment grows tax-free as long as your money stays in the 529 plan. And when you withdraw money from your plan to pay for college, the money is federal tax-free as well.
You the donor stays in control of your account. With few exceptions, the named beneficiary has no rights to the funds. In other words, you don’t need to worry that your 18-year-old granddaughter will cash in her college fund and run off to Mexico to get married. You call the shots!
The 529 is easy! Once you decide which 529 plan to use, you complete a simple enrollment form and make your contributions or sign up for automatic deposits. Everyone is eligible to take advantage of a 529 plan. Generally, there are no income restrictions or age limitations.
Many states also offer multiple 529 investment options, from high risk to conservative, and, as the child ages, the money can be moved to more conservative funds for safekeeping. Just because you save money under a specific state’s program, the beneficiary of the account isn’t always required to go to school in that state. Check with your state, to make sure there are no limits. If your grandchild doesn’t go to college, you’ll have to pay a 10 percent penalty on the earnings, which means that you will get back 100 percent of your principal and 90 percent of your earnings.
Savvy Resources: For complete information on the state sponsored 529 plans see these Web sites.Saving for College: A comprehensive Web site offering valuable information on the 529 plans. Visit www.savingforcollege.com or call 1-800-400-9113.
The College Savings Plans Network: They serve as a clearinghouse for information among existing college savings programs. Visit www.collegesavings.org or call 1-877-277-6496.
Send your questions to Savvy Senior, P.O. Box 5443, Norman, Okla. 73070, or visit www.savvysenior.org.