Gifts that do some good
Making contributions in order to save for your grandchildren's education is a great way to help them achieve their dreams.
A big contribution can make a big difference
If you're ready to kick in to a college fund, check with your child to see if your grandchild has a 529 education savings plan. If one hasn't been opened yet, talk to your child about starting one, or surprise her by opening an account with your financial professional.
It's good to know:
- CollegeAmerica® 529 savings plans have no income restrictions.
- Each taxpayer can contribute up to $15,000 annually per child ($30,000 for married couples) without gift tax consequences.
- Under a special election, you can contribute up to five years at once (up to $75,000, or $150,000 for a couple) without it counting against the lifetime gift tax.
Not only are there tax benefits to a 529 savings plan, but more importantly, the money contributed early on can continue to grow, helping your child and grandchild with future costs for education. Note that tax deductions may be disallowed in the event of non-qualified withdrawals. State tax treatment varies.
Smaller contributions make a big difference too!
If making a sizable lump-sum contribution isn't realistic for you, consider making smaller, regular contributions every year. Those gifts really add up.
Imagine your child is funding your grandchild's 529 savings plan to the tune of $100/month for 18 years. Assuming a 6% average annual return, she’ll have $36,689 saved by the first semester.
$1,200 a year x 18 years @ 6% average annual return = $36,689
That’s a tidy sum. But if you (as the generous grandparent you are!) kick in two additional $250 contributions per year, assuming a 6% average annual return, that 529 savings plan is now worth $51,977 by the first semester.
$1,700 a year x 18 years @ 6% average annual return = $51,977
* For illustrative purposes. Not intended to portray an actual investment.
Take care of you first
Your heart is in the right place, but don’t fund their future at the expense of your own. Make sure you’re meeting your retirement goals, too. If committing to an ongoing contribution to a 529 savings plan is too much for your budget, consider annual gifts on birthdays or holidays when you can. Every little bit helps. What you contribute today might cover books, and if allowed to grow over time, it could cover part of tuition for a semester.
