Seeking advice-college savings for grandchildren

<p>We would like to begin a modest savings plan for our three grandchildren's future college expenses. The kids are young (siblings; oldest is 4). At this point we are talking about a small beginning, perhaps $2000 per year for the next three years, and we should be able to increase to between 6-8K per year after that.</p>

<p>What should we consider? I've been doing a little reading about 529 plans. Should we give the money to our D and son-in-law or set up the accounts ourselves? We are WA residents but are stationed indefinitely overseas; D and family are in CO. But they are young and somewhat unsettled, just starting out with their own business, and they may end up somewhere else in the future if their business expands as projected. </p>

<p>Thanks in advance for advice!</p>

<p>I don't know what is best for your family, but will throw out some things that occurred to me after reading your post...</p>

<p>Do you need the tax advantage that would come from a 529 plan? If not, it might be more advantageous for you to simply save the money in your own name in your own account, and then offer it when it is needed for tuition/to pay back loans. That way the money is not included in any financial aid calculation, it's not earmarked only for education, it is available if you for any reason need it (unforeseen medical expenses, for example), and so on.</p>

<p>You are not limited to opening a 529 plan just in the state in which your grandkids currently live. Many states allow non-residents to participate in their 529 plans; I know there's a list of which states allow it somewhere on the web.</p>

<p>You might consider opening three investment accounts and purchasing stocks for each grandchild; you may get more growth through your own stock picks than you would in a mutual fund. </p>

<p>Can money in a Roth IRA be used for education expenses for one's grandchildren? IIRC, one can use one's Roth to pay for one's own child's college expenses; I don't know whether that is true for grandchildren. If so, that might be another way to save the money with a tax-beneficial account.</p>

<p>So no answers from me, just some things I'd be looking at. Sorry!!</p>

<p>Owlice brings up several excellent points. Presuming you have earned income, saving in Roth IRAs will permit money to be withdrawn tax free (after age 59 1/2), and as a bonus will cover your needs should your financial circumstances change. If you have no earned income then a 529 makes sense when grandchildren are young. Just keep in mind that 529 money is essentially "gone." Custodial accounts are "iffy" if for no other reason than the "kiddie tax" age limit seems to be a moving target (upward!). And Series EE bonds have shortcomings beyond the low interest rate.</p>

<p>FWIW, if the Roth IRA isn't an option, I'd go with Owlice's suggestion of paying your grandchildren's tuition directly.</p>

<p>In short, my advice would be "keep it simple, keep it flexible, and don't try to outwit the system because the rules are ever-changing." Good luck!</p>

<p>My kids' grandparents started out investing for their college expenses at birth with mutual funds set-up as irrevocable trusts. For various financial reasons, that plan was abandoned in favor of just investing in accounts in their (grandparents') names and intending to use it for grandkids' college. At the time, they told us that they would/could plan to pay for 6 tuitions, two grandchildren per family. So, I would concur with Owlice on not limiting yourself to 529 accounts. Although I'm sure that would depend on your own comfort level with long-term investing.</p>

<p>Here's the real reason why I replied, however. Be sure to give some consideration to how you will communicate this arrangement to your children. For 18 years, my parents told us that they would "Pay for college". Even when repeatedly asked exactly "what" they would pay, they said they would pay everything that they could pay directly to the school (tuition, room/board, bookstore, fees). In May of S1's senior year, when he had already committed to his dream school and I presented the costs to my parents, THEN they said that they would be contributing $20,000 per year. Factoring in meager merit scholarships, that amounted to about half of the actual COA. It was a huge (and devastating) announcement so late in the game (and with another son looking at college costs three years later). My husband and I had not saved much on our own, as we had dedicated all of our discretionary savings to retirement, since H has always been self-employed.</p>

<p>My point is...be sure to decide now and communicate clearly with your children as to your gift plans. OR not tell them at all that you intend to contribute, until the time comes. I wish that we had not assumed that college $$ would be taken care of. There are some things we would have done differently over the past 19 years. As it is, S1 will be able to stay at his school and pursue his intended major, but will drop his plans for a minor (that would have entailed an additional cost of $30,000 over the next three years).</p>

<p>Good points! We do have earned income and expect to be working for the next 15 years. We really are not thinking in terms of tax breaks or working the system, but we want to be able to offer some help to our daughter and her husband, because when this D was in college there was no possible way we could afford the private school she wanted to attend, and now, fortunately, we are able to fund her younger sister's private education. We are not rich, but we can spare the amount we are talking about for the grandkids, and so we're just looking for the best way to go about it. I hadn't even given Roth a thought, but we'll definitely be old enough to withdraw from it by the time the kids reach college age.</p>

<p>I'm all in favor of Roth account and not telling. Can you put enough into a Roth per year to cover the 6-8K future annual savings?</p>

<p>You might want to consider giving your older D some money to put into a 529 that she and her H control. Not so much that they feel college will be taken care of, but something to get the young family thinking about saving for college expenses on their own. I know for the 529 plan I have, the initial deposit has to be a minimum of $1K. For three kids, that might be a lot for a young family to come up with. You might want to offer, say, $3K if you are in a position to do so, for the initial deposit. They can set up automatic deposits into the accounts in whatever amounts they can spare. </p>

<p>Otherwise, I think I'd not mention other savings that you have for college until it is much closer to time for college for these kids.</p>

<p>As a former student whose college tuition was paid for by grandparent largesse, I thank you for what you are doing for your grandchildren!</p>

<p>Washington has the G.E.T. program, which has worked out well for us. You may be eligible as a Washington resident, although I'm not sure whether the kids need to be current residents. This is a program run by the state, and when the account is in a grandparent's name, it does not get calculated in financial aid evaluations (at least right now). The fund is indexed to in-state tuition increases at UW, so it is guaranteed to go up over time. The only downside is that you're allowed to invest only in as many "units" as would cover full tuition for 4 years. But it's a great deal - our broker told us many times that this was the place to put extra money, and he wasn't making a commission off that advice!</p>

<p>If the grandparents own the 529 and have the grandchildren as the beneficiaries, then the 529 will not be counted as the kids' assets when and if the time comes for them to apply for financial aid. My mother has a 529 for my daughter and we are trying not to use it until her senior year (three years from now), so it will not impact the package that she is getting from school. Then, we can shoot it at the tuition for senior year, which will be aided, and not have to pay anything out of pocket for that year. That is the best way, it seems to me, for a 529 to be allocated. Students' assets are impacted somewhere around 20% (more?) and parents' are impacted around 5%, in figuring out FAFSA. But grandparents' are not an issue, even if the kids are the beneficiaries. Once the 529 is triggered, though, it does become an issue. We did make the 529 known when we filled out the CSS, so we are not hiding anything. School did not account for it in its FA to us.</p>

<p>I agree with franglish. A 529 for each grandchild as the beneficiary seems to be the way to go. It won't impact on the FA when it come time for the parents to do the FAFSA, as it is not counted as an asset fot the parent or student. The 529 for my D is in such a way that it takes the childs age into consideration and the investments change as the children age to maximize the returns.
I don't know what state you live in and I don't think it matters which one you open, but NY has a program that explains how the investment works over time, just an example for you.
New</a> York's 529 College Savings Program Direct Plan - Be ready when the bell rings for college.</p>

<p>One wrinkle that came up on another recent thread--posters reported that the CSS profile asks you to list any 529 account of which the kid is a beneficiary, no matter who owns the account. FAFSA won't count the same account in their calculations of assets.</p>

<p>I like the idea of giving the parents a little "seed money" for the college account.</p>

<p>Look at the site: savingforcollege.com which gives information about 529 plans. One of the featured articles on the site right now is about grandparents. There is also a very active board which will attempt to answer individual questions.</p>

<p>Once money is socked away into a 529 plan, it cannot be used for anything other than education expenses without paying penalties. For grandparents who do not need the tax-sheltering that a 529 provides, it might be better to keep the money in something that is more flexible. A lot can happen in 14-18 years.</p>

<p>I have a 529 plan for my S, and so does his dad, but I also put money away in other investments, money that is intended for college, but isn't locked in to paying just education expenses. I like having a 529, but I think flexibility is important, especially with such a long timeframe.</p>

<p>It seems to me that although you may be a WA/USA resident, that you may have some trouble in setting up such an account because of your indefinite overseas residence. </p>

<p>Suggest to you seek an advisor or talk to one of the MF people. Oregon uses Oppenhiemer MF as their 529 administrator but they also handle other different plans/programs that may be more suitable.</p>

<p>I really appreciate everyone's input. H and I are leaning toward giving older D enough for starter 529s now, and then continuing to invest in some vehicle in our name. And we think the advice to not make promises now is sound - if all goes as we plan, and and D and SIL continue to add to their earmarked accounts, they should have some good options when the time comes (and our contribution will be a wonderful surprise!).</p>

<p>I mentioned we are in Germany. If only we'd had a nice extra sum when we arrived six years ago and the dollar and euro were even....if we had put it in a German bank, it would have returned very well by now!</p>

<p>I think that not making promises is a good one. Also do you anticipate doing the same for grandchildren not yet born. (of other sibling)
My neighbor had parents(her inlaws) who kept insisting they were going to pay for college for all the grandchildren. They have 20. My neighbor knew that this was not going to happen- not with the tuition being what it is. The grandparents spoke of this promise often to the grandchildren and told them to apply wherever they wanted to go. The oldest got into USC. Even after a full tuition scholarship the amount for the grandparents was much more then they were willing or able to pay. I don't know what the grandparents were thinking. They have helped some but my neighbor has ended up paying the bulk of the room,board and other expenses. I think the 2nd grandchild is at a Cal State and the grandparents are picking up that bill.
I think it is great that you are willing to help.
My inlaws have always helped with tuition. In our case they wrote a check directly to the school. It is a generous gift and we appreciate it but don't count on it for all the kids. Financial stability can change at any moment.</p>

<p>
[quote]
posters reported that the CSS profile asks you to list any 529 account of which the kid is a beneficiary, no matter who owns the account.

[/quote]
</p>

<p>This is true, and we did this when we filled out the CSS when D applied at the end of 2006. We never had to fill out the CSS Profile again, yet we do have to re-apply for FA each year. The school only asks us to fill out the FAFSA and to send them our tax returns as verification. So, grandma's 529 has never come up again. As I said, we really did not want to hide anything, but this seems to have worked to our advantage. We realize that we stumbled, totally by chance, on what seems to be the best way to handle this.</p>

<p>Wow, Mom60, did the grandparents have any idea what tuition can run? In our case, we would try to help hypothetical future grandkids also, but I really think that will be a while - younger D is 19 and thinks 28 or so is a good age to marry, so we'll see! In any case, we paid about $28K total for older D's undergrad, and for younger D it will be $150K+. But in both cases, we paid/are paying what we can afford.</p>

<p>ReneeV-I think the grandparents really had no clue. They are immigrants and worked hard and have been quite successful. I think they truely had no clue. Their own children all lived at home during college and went to state schools.</p>

<p>what is the penalty for withdrawing funds from a 529 to give to a child upon graduation....the balance?</p>