If you are a grandparent, finding just the right gift for your grandchildren can often be quite the dilemma (We would argue that even parents have a hard time with gift giving ideas as their kids get older). It is a difficult pull between the fun must-have gift that they REALLY (add childlike pitch here) want and something they need (aka – socks and underwear)…all the while trying to find something they won’t quickly outgrow. This year, we at Financial Fiduciaries would like to offer a bit of advice, and suggest a gift that will hold their attention for years to come.
As a grandparent, one of the most important things you can give your grandchildren is the opportunity for a bright and happy future. With that in mind, we would suggest that every grandparent should consider the gift of a 529 college savings plan. While your grandchild might not appreciate that they REALLY need this now, it is a great way to pave the way for their future.
The features of 529 plans can vary from state to state; however, there are several things that make them quite attractive for both grandparents and the grandchildren who ultimately receive their benefit. One of the biggest advantages is the fact that a withdrawal from a 529 plan is federal income tax-free when used for higher education costs such as tuition, books, fees, supplies and other qualifying expenses. Also, if a grandparent maintains control of the account, they have the ability to determine when the proceeds can be dispersed (note: you can also contribute to an account controlled by the child’s parents). Additionally, many grandparents like the fact that they will not incur a gift tax on annual gifts up to $14,000 (or a total of $60,000 per grandparent, per beneficiary). And, because 529 plans can be “front-loaded” they allow more time for tax-deferred savings growth.
There are many things to consider if you are thinking about starting a 529 savings plan for your grandchild. One of the best places to start your research is to discuss your plans with a fee-only certified financial planner. They can educate you on the best college savings tool for your needs and talk about the implications and regulations associated with each.
As the holidays approach, a 529 plan just might be the perfect solution to your gift giving dilemmas. And, even if your grand kids don’t see the benefit of such a gift right now, we can guarantee that someday they will be very thankful you cared enough to give them something they REALLY need!