Best savings plan/account for grandkids?

[Darcy03231]

Until reading about it on the Dis, I never knew that this was a thing grandparents did. My grandparents didn’t and neither did my parents for my daughters. I don’t have grandchildren but it is not something I think i’d do either.

Just how much money is expected to be contributed? How much in the end will it actually be?

Our daughter and SIL opened 529 account for their kids. I buy one thing for birthdays/Christmas and then put the remainder of any budgeted money into their 529. I usually budget $150 for birthdays and Christmas. Grandson just had a birthday and we bought him a $25 gift to open and put $125 into his 529.

 

[TCRAIG]

Not if the owner is a grandparent. Funds given can count as income, however, not as assets.

Good to know - thanks

 

[Simba's Mom]

Are there fees associated with a 529?

I don't know-I don't think so-although I should know since we started 4 of them for our grandchildren. We don't make regular contributions to the 529s as some people do. However, we're getting to an age where our parents have died, so we always contribute a portion of our inheritance to our grandchildren. And I had to laugh at the person who said that rather than setting up 529s, they just contribute to the ones their children already set up for the grandchildren. In our case, DS recently wanted to contribute part of his tax return, so he just wrote DH a check and asked him to put it in the account we'd set up.

 

[lovesmurfs]

I don't know-I don't think so-although I should know since we started 4 of them for our grandchildren. We don't make regular contributions to the 529s as some people do. However, we're getting to an age where our parents have died, so we always contribute a portion of our inheritance to our grandchildren. And I had to laugh at the person who said that rather than setting up 529s, they just contribute to the ones their children already set up for the grandchildren. In our case, DS recently wanted to contribute part of his tax return, so he just wrote DH a check and asked him to put it in the account we'd set up.

And my DDIL didn't trust us to use DGD's Social Security number to set up a 529 program (she doesn't trust the "market."). DS called and asked all sorts of questions, etc. and it just didn't seem worth the effort or justifying it.

So I set up a mutual fund in my own name, told DH about it, and it goes to DH when I die, but he's earmarking it for college for DGD. Contingent is DS if we both die.

We started it with $2,000 and put $150/month in it until last month. It's at over $8,000 now (DGD turns three on Halloween). I'm thinking that may be enough and just sit and let it grow, but we'll see.

My grandmother put $5,000 in mutual fund accounts (UTMAs) for both kids. We never added to either one (due to being broke while the kids were growing up). Even though they're both over 21, they've asked me to stay as custodian of the accounts for now. DD26 used hers for a Europe trip with her college choir and for a car -- She's only got $12k left. DS31 hasn't touched his, and it's at $34k. I remind him from time to time, so he's aware it's there.

 

[Dan Murphy]

Are there fees associated with a 529?

As with all mutual funds, there are fees associated with their management.

I use the State of illinois plan, Bright Start, one of the highest rated 529 plans in the country. I use its Enrollment Date Portfolios, similar to target date, or age/retirement date based portfolios in a 401(k) plan. The total annual fee is 0.10% (1/10%).

Beside the federal and state income tax deferral and tax free education purpose withdrawals, I get a Illinois State Income Tax deduction on the deposits, 4.95%.

 

[Frwinkley]

Our oldest grandchild is 2 1/2. We opened a 529 for her when she was born with $250. We contribute $250 each month, with an additional $200 for her birthday and Christmas. Her account has close to $10K in it at this point.

We will do exactly the same for her baby brother who was just born in May.

In PA, we are able to fully deduct our contributions from our state income taxes (not Federal).

 

[tvguy]

And many folks do not qualify for any need based scholarships anyway.

Yes. Some parents and students are shocked to find out they do not qualify. My kids High School had excellent College Planning Advisors who met with parents all four years of high school. They warned that in the College Financial Aid world, things like Retirement savings are considered luxury spending that should instead be spend on your child's education. And the FAFSA Expected Parent Contribution is pretty steep. They said to expect that number to come up to about 28% of your GROSS income........yes gross income, not take home pay. I was lucky, mine came in at 27%. And your Allstar athlete, first chair musician etc. will be competing with a pool of allstars and first chair musicians for scholarships.

 

[Dan Murphy]

Retirement savings are considered luxury spending that should instead be spend on your child's education.

Qualified retirement accounts, such as 401(k), IRA, SEP are not considered assets for FAFSA.

 

[tvguy]

Qualified retirement accounts, such as 401(k), IRA, SEP are not considered assets for FAFSA.

Been 20 years since I filled a FAFSA out, so my memory may be failing or it changed since 2005.

 

[Dan Murphy]

Been 20 years since I filled a FAFSA out, so my memory may be failing or it changed since 2005.

It has not changed. Also not reportable are home value, life insurance cash values, annuity cash values, 529 accounts (not owned by student or parents), HSA account values.

 

[tvguy]

It has not changed. Also not reportable are home value, life insurance cash values, annuity cash values, 529 accounts (not owned by student or parents), HSA account values.

Take a look at Page 8, worksheet B. You DID have to report IRA deductions in 2005. https://fsapartners.ed.gov/sites/default/files/attachments/fafsa/0506FAFSA101204.pdf

 

[Dan Murphy]

Take a look at Page 8, worksheet B. You DID have to report IRA deductions in 2005. https://fsapartners.ed.gov/sites/default/files/attachments/fafsa/0506FAFSA101204.pdf

Yes, deductions, because that would have been income before deposited and subsequently deducted for that year. But not the accumulated assets in the IRA.

 

[tvguy]

Yes, deductions, because that would have been income before deposited and subsequently deducted for that year. But not the accumulated assets in the IRA.

Yes, that is what I remember.

 

[QueenIsabella]

My MIL had more money than she could realistically spend, so she gave to our kids in several ways:

They all had UTMAs. This was imperfect (for our family), in that DH's brother cleaned out his kids' UTMA accounts, so it never directly benefitted the kids--at least, not how MIL intended.

She set up a 529 for each son's family (oldest child, then passed down to next, etc.). She maintained control of the 529s.

She gave each child $500 checks for Christmas/birthdays. I put these in their savings accounts. Then, when we went on vacation, I would take out $100 each for souvenir money, reminding them that it was a gift from Grandma.

She paid for college outright for the grandchildren, using the 529s.

She left a life insurance trust, with stipulations on distribution, to her grandchildren. I believe this was in response to the cleaning out of the UTMAs mentioned above.

She also paid for overseas travel as gifts for the children--niece went to Paris, our kids went to Spain, Scotland, Ecuador on her dime.

Since she was very big on education and travel, when she passed, we mentally earmarked DH's inheritance for education and travel. We are cash-flowing college for the remaining two who haven't graduated, and just put a down payment on a family trip to Iceland for next year.

Our kids are each getting close to 6 figures from the various accounts (not including the value of their educations). Not enough for "beach bum" money, but a great start to adult life. They are aware that this money is the last legacy of their beloved grandmother, and treat it with respect--oldest will use some towards a house down payment, #3 is looking at law school, that kind of thing. Similarly, 2 of our nieces used their money for house down payments. #4 loves to travel, he may use some money for that, when he gets access (he's 19--access at 21).

 

[_19disnA]

Until reading about it on the Dis, I never knew that this was a thing grandparents did. My grandparents didn’t and neither did my parents for my daughters. I don’t have grandchildren but it is not something I think i’d do either.

As with most types of financial discussions on here, it depends on the financial situation of each person. If the grandparents are retired with limited resources and living off Social Security with just enough to pay their bills, then clearly the idea of funding education for grandchildren would probably not be a priority. Aging grandparents might also have significant medical bills or even need to eventually live in some sort of assisted living/nursing home which no one can predict ahead of time and can be very expensive. It isn't like they can ask for that money back if they encounter expenses they hadn't previously planned for.

What is 'best' largely depends on each family situation of which there can be many variables.

 

[disneychrista]

As with most types of financial discussions on here, it depends on the financial situation of each person.

I totally agree with money things it will vary widely. I was shocked to learn that some people spend upwards of $500 for each of their kids at Christmas.

I was not in the financial situation where I could even think about saving money when my kids were young. Therefore have no knowledge of college savings accounts. My grandfather had money and the only thing he ever said about helping for college was if I got into Stanford (his alma mater) he would pay. Needless to say, I didn't go to Stanford.

 

[tvguy]

As with most types of financial discussions on here, it depends on the financial situation of each person. If the grandparents are retired with limited resources and living off Social Security with just enough to pay their bills, then clearly the idea of funding education for grandchildren would probably not be a priority. Aging grandparents might also have significant medical bills or even need to eventually live in some sort of assisted living/nursing home which no one can predict ahead of time and can be very expensive. It isn't like they can ask for that money back if they encounter expenses they hadn't previously planned for.

What is 'best' largely depends on each family situation of which there can be many variables.

Looking back, I am struck by how, what appeared to be an insignificant financial decision decades ago, can end up being rather large decision in the long hall.
My wife has one retirement account that somehow never got combined into other IRAs. It was opened in 1979 with a week's pay given by her employer for an IRA. A few hundred dollars. It was invested conservatively, and now is enough money for us to live on for a year.
On the flip side, 10 years before we retired, she got completely out of the stock market in her 401k because it had reached a balance the would likely support all her needs (with Social Security) for the rest of her life. She was no longer comfortable with the risk of losing principle. Who could have predicted that the Dow would go from 11,500ish, to 36,000ish. She didn't lose any principle, and it grew more than the rate of inflation and is still a sizable amount, but if she had stayed in the stock fund should would have retired with a lot more money, over 6 figures more.
I think the biggest long term decision mistake I have seen is people taking equity out of their home when they refinance. Two people on my street lived in their homes for 30+ years, and when they sold, owed more on those houses than they paid for them.

 

[Simba's Mom]

Qualified retirement accounts, such as 401(k), IRA, SEP are not considered assets for FAFSA.

That's the way I thought I remembered it, but since I'm going back close to 25-30 years, I figured things could have changed. Plus, I don't trust my memory that far back.

 

[DCL58]

I do not recommend UGMA accounts - uniform gift to minors. We had them for both boys for their gifts from their grandparents. It was a pain for years. And it caused pain at tax time - we had to file kiddie tax returns until they aged out. Those are incredibly difficult to file.

Grandparents ended up giving each son about $250K. Paid for their college, first cars and the rest was used as down payments on their homes.

We hope to do the same for our grandkids if we ever have any.