Tax and Money Tip of the Week:
Throwing Out The Old Rules of Money
June 22, 2011 | No. 48

Old School Rule #4
Conventional college-savings advice:  The best way for grandparents to contribute to a grandchild’s education is a 529 college savings plan.  These state-operated plans are designed to help families set aside funds for future college costs by offering tax breaks. 

My unconventional wisdom:  Most grandparents should skip 529 plans.

Why it’s smarter:  There’s no assurance that your grandkids will need the money.  They might win scholarships or not go to college at all.  What’s more, their parents might incur problems of their own, such as divorce or job loss, causing them to raid the account that you helped fund.  Another drawback is that 529 plans limit options for investing money.  Most important, you may need that money yourself for healthcare or other expenses.  Better:  Talk to your estate-planning attorney about setting up a tax-free trust for your young grandchild, and stipulate that it remain untouched until the child reaches retirement age.  Over the long run, that will serve the child much better than your contributions to a college fund.

Questions or Comments?

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Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.