<p>"if you withdraw money from a 529 plan and do not use it on an eligible college expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. "</p>
<p>Source: An</a> Introduction to 529 Plans</p>
<p>A lot of excellent advice in this thread, and the OP appears to be taking a well-balanced approach. I do think it is important for the parents to take on the responsibility for ensuring the financial needs are met, and it is a great idea for grandparents to "prime the pump" and pitch in where they can.</p>
<p>I don't mean to plug any particular brokerage, but I found some of the planning tools at Fidelity to be helpful in understanding the future cost of a college education. In particular, they have tool where you can select a category of school - or specific school - and it will take the current COA and project the future cost. You can get an idea of what the monthly contributions ought to be to meet the target. Anyway, I think it is good for the parents to get over the sticker-shock when the child is age one instead of age 17, and start making automatic deposits right away.</p>
<p>Good idea giddey_up, althought the numbers will be so scary as to put them into schock. What parents/grandparents also need to realize is that the $$ from school can come from other sources than savings/investment, such as loans and cash flow (kids and parents)(scholarships if you are lucky). Just because you don't have enough money to pay for all of college doesn't mean that your kid can't go.</p>
<p>As a grandparent, I would definitely avoid saying something like, "I'll pay for all of college for you, "especially if grandparents haven't priced the cost of college recently.</p>
<p>I think that they might be SHOCKED to find out that a year of college could cost $50,000.</p>
<p>Here is a good link with great answers to those kinds of questions. Somewhere I read that it was better for the student to take out student loans and then let Grandparents pay off the loans when they came due so that the student would be eligible for the maximum amount of aid.</p>
<p>FAFSA</a> Online Secrets - Qualify for More Financial Aid</p>
<p>Renee, I think what you're doing is great, but I want to throw some cold water onto your very abundant generosity.</p>
<p>Do you and spouse have long term care insurance? We have family members who sure wish the extra 2K per year the grandparents were socking away for the kids college education were being used for long term care premiums. Paying for a caregiver for grandma with alzheimer's makes college looks like chump change. College is 4 years; an elderly parent could need an aide for 10 years or more. A private nursing home or assisted living could be 120k per year in a major metropolitan area in the US.</p>
<p>I think it's fantastic you want to pay it forward, but at the end of the day, the best gift you can give this daughter is knowing that you have insured your own financial future- even if you live to 100, whether you are healthy and independent, or have parkinson's or dementia or are hooked up to a feeding tube. And the toughest part.... you could have a still healthy spouse, who also needs a roof over his/her head, food, prescriptions and other medical expenses, etc. So the strategy of knowing that if you're impoverished the tax payers will pick up the bill assumes that there's only one of you to feed and clothe.</p>
<p>Not that I know much about it, having not sent a kid to college yet but going to next year, this is what I think. It's better to have the savings in somebody else's name other than the student since they go by that a lot in FAFSA calculations, according to what I have found out. My son has money from me in an UTMA account plus money from granparents plus some of his own savings accounts and he will qualify for no financial aid by the looks of it. He has quite a bit saved but not enough to "blow" on a dream school where aid will be zero. He has enough to have some assets but not enough to accomplish what he might have wanted to, so it is holding him back and we instead are angling for someplace with an academic scholarship to help make up the difference. </p>
<p>So what I have learned in this is that it doesn't always seem best to put it in the child's name, and doesn't even need to do the college plan thing...just set it aside in an account so, like others have mentioned, you can tap into it at any time, especially if the unforeseen happens and you need some quick liquid assets. I think it's okay to tell your D you will be contributing to college but not to say you will cover it all of most of it, etc., since the cost is so variable depending where they go and what they have of their own aid by that time. By the time the first goes to college, maybe all the granchildren will be born by that point and you'll know how many ways to split the college money and at that point it can be presented right in time for tuition but after FAFSA is accounted for. I'm assuming that is how you would go about it so the student didn't have extra assets sitting around in the meantime.</p>
<p>Renee, If you have experience working with a financial adviser I would suggest talking to him/her; if not, I think you would be better off getting input from someone who has a little more knowledge than most of us CC's specialists.</p>
<p>Good Luck!</p>
<p>ReneeV, if you are still reading here, another consideration now that the stock market has suffered considerably is the investment allocations for 529 plans. These are in funds controlled by the financial "gurus" who created this economic mess, for the most part. There are some with a small risk and of course smaller returns, but if you want safety in the investment (and predictabiltiy) over the years till the kids go to college, consider where you put the money, and how it will be put to work. Just my 2 cents.</p>
<p>Another trick that was suggested to me - 529 money can be transferred for use by any family member. Open the 529 for yourself - and then you can transfer it when the grandchild is old enough for college. Since the person who suggested this was not a financial planner, please validate that this scheme works - but it would give you the benefit of having the money grow tax free - and out of the consideration for FA. You can also then hand it out as needed - e.g. kids going to different schools with different COA would have different needs.</p>
<p>Here's another thought. What if you die before your savings benefit all present and future grandchildren? Think about how your wills are worded. Do you want your children to inherit your money or do you want provisions for all present and future grandchildren? Do you want money to go to grandchildren who do not go to college? Do you want each one to receive the same amount of money, regardless of their expenses or parental wealth? Would it be fair for one to get a lot more than another because of the school chosen, merit scholarships earned or year attended? Be sure you both have wills that are in agreement so it doesn't matter which dies first. If you survive until the first grandchild's college matriculation you may want to consider how to distribute funds based on the situation at that time. </p>
<p>Years ago I gave savings bonds to nieces and nephews instead of toys, after many years I decided to stop and wanted to equalize amounts received by each child- it was a mess to calculate who had how much... In your case you may give the same amount to each child but their different ages may mean different amounts based on when accounts are established, varying rates of return on the invested money...</p>
<p>There are philosophical issues as well as financial ones to consider. Finally, be sure you provide for yourselves for however long you live, the grandchildren can find other sources. Think about the recent stock market changes- no guarantees with investments.</p>