When all of my boomer parents (both my husband’s and mine) became grandparents for the first time by X 2 (yes, there were two baby girls to love and hold) twelve years ago, the thought of college for this dynamic duo went like a flash before their eyes.
Now, as they watched the dynamic duo blow out their candles on their birthday cakes this year, the creeping college monkey decided it was again time to make an appearance.
Both of my daughters and my third born child, my son, already know what they want to be when they grow up. The dynamic duo, the artist, and the musician have set their sights on colleges that will further their ambitions to become an art teacher and a band director, and my son says that he is going to college and then onto the major leagues.
Blessed that their grandchildren embrace the idea of early goal setting, my parents realized that birthdays and holidays were a great way to start a mini college nest egg for their grandchildren’s future academies.
My parents and other boomers have an opportunity to save a little stash of rainy day money for their current and future college bound grandchildren through savings plans only geared for grandparents.
“With a little planning, helping your children with your grandchildren’s college tuition and expenses is a win-win situation for you and your family,” says writer Dan Solin, best-selling author, and vice president of Index Funds Advisors.
529 Plan
Solin recommends the popular 529 plan as a suitable solution for college savings for grandchildren. “This plan is designed to help families fund the cost of higher education,” says Solin. The 529 plan is a college savings vehicle supported by a state or educational institution. Boomers need to research individual state websites about the requirements for the 529 plan, and Solin recommends using “savingforcollege.com” to research different types of 529 plans tailored to meet the needs of both the investor as well as the grandchildren.
According to the United States Securities and Exchange website, “Investing in a 529 plan may offer college savers special tax benefits. Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so long as you use withdrawals for eligible college expenses, such as tuition and room and board. However, 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 percent federal tax penalty on earnings.”
“Gen-Xers are a highly-educated generation and want the same for their children. As the younger Gen-Xers start families, we expect to see growing interest in college savings plans such as 529s,” says Beverly Moore, Mainstay Investment’s director of wealth management.
MainStay Investment’s 2005 Across Generations survey categorizes current generation groups as Gen-Xers ages 26 to 42; boomers, ages 41 to 59; and mature, ages 60 to 82.
According to Solin’s report, the states with plans that bear a low cost start-up include Ohio, Utah, and Virginia. Arkansas has a 529 plan that is involved in “iShares Exchange Traded Funds.”
HEET (Health and Education Exclusion Trust)
Another savings plan option is HEET (Health and Education Exclusion Trust). Investment and estate advisors highlight this savings vehicle for clients who after their death, want their money to pay medical and education expenses for family members, or turned over to grandchildren, without the burden of “estate, gift, or generational taxes.”
“How this works specifically is that a grandparent, in their will or revocable trust, provides that the amount of assets in excess of the amount that passes free of generation-skipping taxes, after payment of estate taxes, will be used to fund HEET,” says attorney Gary Altman.
Altman advises boomers to seek out information about HEET before they consider putting money away for their grandchildren. “You must make sure it would be an appropriate component to your overall estate plan based on your desires and financial resources,” adds Altman.
Traditional Gift
Boomers have another option to consider in saving for their grandchildren utilizing the traditional gift act. The Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act allows individuals to “gift” money to minor children until they reach a certain age. One downside to this is that someone has to report future earnings on the gift.
Sources:
http://retirement.equifax.com/2010/07529-college-savings-plansare-best-for.html
http://www.allbusiness.com/banking-finance/financial-marketsinvesting-investments/5046530-1.html
http://www.boomer-living.com/2010/07/its-like-a-heet-way-whyboomers-should-consider-a-health-and-education-exclusion-trust-2