By Gary Foreman, The Dollar Stretcher
Whether it’s for your kids or grandkids, you’ve always believed that a college education was important. So as tuition costs continued to climb above the inflation rate – an average of 27% from 2008 to 2014 – you’ve begun to wonder whether your grandchildren will be able to afford a college education. And you’ve decided that you want to do something about helping your grandkids afford college.
So let’s explore ways that we baby boomers can help our grandkids avoid massive student loans and still get through college.
If your grandkids are small, start by putting away small amounts on a regular basis. You can stash the savings in a UGMA account or a 529 plan (we’ll explore 529’s in a minute).
Every dollar you put away will become $3 or $4 by the time they enter college. So for birthdays or Christmas you might want to buy a less expensive present and put the extra money away for them. Or take a portion of the money that you save with coupons or other savings strategy and put it in the grandkid’s account.
If you’re doing well financially you might want to fund a 529 plan. These plans weren’t available when we were going to school so you might not be familiar with them. The SEC’s website has a good explanation.
Here are the basics. Money that you contribute to a 529 plan is not tax deductible. But the money can grow tax free if you use the money to pay for qualified education expenses of the beneficiary. The IRS helps to explain it here.
You’ll want to talk to an investment advisor if you plan on opening a 529 plan for your grandchild. You should also get their parent’s involved, too. Make sure that the advisor makes you aware of any gift tax complications.
One benefit of the 529 plan is that you don’t need to fund all of it. It can be a joint effort with your children. As we remember, it can be hard for parents to think about and save money when there’s a new baby in the house. Between paying for formula and changing diapers there’s little time to think about something that’s nearly 20 years in the future. By working with them on a 529 plan you help them look past sleepless nights and diaper rash.
For many of us, our grandkids are already in college or high school. Then your financial help needs to be focused on current expenses. If you’re in a position to plan on leaving your grandkids an inheritance, this might be the time to give it to them while you can see them enjoy it.
You can choose to write a check or to routinely cover certain expenses. Sending them a check, cash or putting money on a debit card is certainly the easiest way to help. But it does miss an opportunity to be a part of their life. Paying a specific bill makes it easier to open a discussion about your grandkid’s life.
Finding an expense to take isn’t hard. The university wants money for tuition and fees. Professors tell students which books to buy. And, naturally your student wants to eat and keep a smart phone plan. Choose an expense that’s affordable and predictable.
Once again, if you’re talking about more than a few dollars, let your financial advisor know about your plans. Gifts over a specific amount could trigger gift or estate taxes. Don’t want to give the government money that you want to go to your heirs!
Perhaps your finances are tight and you can’t make a cash contribution. That doesn’t mean that you can’t help your grandkids get through college. Consider shedding a few household items. If you haven’t already, you’ll probably be downsizing soon. That means it’s a perfect time to ask the grandkids what they need for their apartment or dorm. You’d rather give it to them instead of the thrift store.
College has certainly changed since we were there. But some things remain the same. An education is valuable and can pay dividends for an entire lifetime. So helping your grandkids pay for college is a gift that will still be giving for decades to come.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletter in 1996. He’s been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. The site features a large baby boomer section. For more on The Future of Social Security.
Photo by CollegeDegrees360 via Flickr CC License
