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COLLEGE SAVINGS 101

Tutorial - Special considerations for grandparents

[Excerpted from Savingforcollege.comís Family Guide to College Savings]

Surveys show that many grandparents want to help fund the college education of their grandchildren, particularly if they already have enough money to ensure a comfortable retirement income. Grandparents in this position should investigate college savings options just as parents do, but often with different objectives in mind.

Typical Grandparent Goals

Concern about the estate planning implications of college savings choices. Many grandparents see a dual benefit in advancing their grandchildren’s education and reducing estate tax exposure.

Control and accessibility. You may want to retain control of your funds and keep them easily accessible to you in case of unexpected expenses.

Ease of management. You probably want an investment vehicle that doesn’t complicate your overall financial management.

Flexibility. You may have several future college students to think about. They may be spread around the country and their financial situations may vary greatly depending on the financial security of their parents and their other grandparents.

Your Place in the Overall Education Savings Plan

If you decide to assist your grandchildren, it’s important to involve their parents in the decision-making process. Your desire to pay college bills directly or to set up educational trusts impacts the financial aid application filed for the student.

And if you gift money or other property to your grandchildren under the Uniform Gifts to Minors Act (“UGMA”) or Uniform Transfers to Minors Act (“UTMA”), any future earnings or capital gains will be reported to the child and may require the parents to prepare tax filings.

Be sure to consider the benefits of a 529 plan. Many grandparents find it to be a particularly attractive investment program. Like any other grandparent-owned investment, your 529 plan is not counted as an asset in the determination of financial need for federal student aid programs. However, any money actually spent on behalf of the student must be added to student income on the aid application.

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