Before our first grandchild was born my wife and I decided that we would open a 529 for her and then for future grandchildren as they were born. A 529 savings plan has many benefits. You can contribute towards future educational expenses with all earnings being tax free, much like a Roth IRA. You can open a 529 for anyone at anytime. The plan can even be used for K-12 tuition and college expenses. You can withdraw the money at any time, but earnings can be subject to income taxes. The plan has tremendous flexibility. You can also change the beneficiary at any time. If one child or grandchild doesn't go to college or gets a scholarship, you can change the beneficiary to another child or grandchild.
I discussed with my wife that I thought we should open an account, put in a starter amount and then contribute $25 a month. It won't be a huge amount when they go to college, but it will help a little. She quickly suggested that we should do $100 or more. I said that would be fine for now, but what happens when we have 8 grandkids! So we stuck with the $25 for now. It was a good call because we have twin granddaughters on the way! If you put $25 a month in for 18 years you wind up with $5400 plus earnings. So, not a bad sum to help with college expenses. Of course, this is a starting point and you could always contribute larger amounts and pay for most if not all of college if you wanted to.
The rules are pretty simple on opening a 529. You must be a US citizen, over 18 and have a social security number and mailing address. There are no income limits. If you have grandkids, I encourage you to look into opening an account for them. Even a small amount, given monthly, adds up over the years. With the cost of college continually increasing, maybe we can save enough to buy a book or two at minimum. Most states have their own 529 plan as well as the various brokerage companies out there.
I believe you can also save for college expenses through a Roth IRA. You can withdraw from a Roth IRA, tax free, for college expenses. Whichever avenue you use, always contribute as early and as often as possible.
Have you had success with 529 plans or Roth IRA plans? Did you save for college a different way? Are you currently funding an account for grandkids? If so, do you have any additional advice?
We put our sons through college with 529 plans.. We have now opened 529 plans for our 3 grandchildren. We contribute money for all the holidays and give less toys ( they receive more than enough from other family members) We hope they appreciate this as much as there Dads have after graduating debt free. Love 529 plans,
ReplyDeleteGifts into the 529 are an excellent idea and will be more useful than a toy that will be discarded in a year.
DeleteI started 529 plans for my two great grandchildren as soon as they got social security numbers, which was about at two weeks old. Their grandparents also have 529 plans for them. Hopefully the two plans will cover the majority of college expenses or whatever schooling they decide on. I don't give the kids anything other than that as gifts for Christmas, but I do give a family gift like a pass to the Discovery Center.
ReplyDeleteWhat a great gift you are giving your great grandchildren! Combine that with grandparent 529 and those kids will be off to a great start.
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