Biz Brain: saving for your grandchildren's college tuition

Q. I have been saving for college for my three grandchildren. The oldest is now a high school senior in Virginia. She is an honor student, and lives with her mother ? a single parent with no help. The mother lost her job two years ago and is unable to find a decent job. I have about $20,000 for this child. Should I withdraw it and send to her future college?
? Grandma

A. It?s great that you want to help out with education costs for your grandchildren.

Before deciding exactly what you should do with the $20,000, you need to get some additional information.

First, understand the annual projected costs for the school she will attend, from tuition to grocery money and everything in between, said Jim Marchesi, a certified financial planner with Mill Ridge Wealth Management in Chester. Next, determine what financial aid, loans and grants would be available to your granddaughter.

?You want to make sure you assist in such a way that doesn?t diminish her ability to get financial aid from other sources,? Marchesi said. ?While you?re right in thinking to pay the college directly to avoid potential gifting issues if the money went to your granddaughter, you would need to know if such a contribution would affect your grandchild?s eligibility for other college financial aid.?
Marchesi said while $20,000 is a large sum of money, today?s college costs could eat that up in a hurry. A game plan to meet the entire cost of the education experience needs to be developed, and from there, the best use of your generosity can be determined.

When you have that information, Marchesi said you might want to put the money in a 529 Savings Plan for flexibility. You?d maintain control of the funds and contributions would grow tax-free.

?There are no federal income taxes on the earnings if the money is used to pay for education expenses,? he said. ?If the grandchild does not attend college, the account?s beneficiary can be easily changed.?

From a financial aid standpoint, Marchesi said a 529 account owned by a grandparent would most likely not be included when determining a student?s financial aid eligibility unless the grandparent claims the child as a dependent on their tax return.

Another option is a pre-paid 529 Plan, said Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna. These state-sponsored programs allow you to pay today?s prices for future tuition.

?Although some plans require students to attend a state university, most states let you use the money at any accredited higher-ed institution,? Meckler said. ?You generally have to live in a state to join its pre-paid plan.?

To learn more about how these plans work, and what the rules are for the Virginia plan, check savingforcollege.com.

?Karin Price Mueller

E-mail your questions to askbiz@starledger.com.

Source: http://www.nj.com/business/index.ssf/2011/12/biz_brain_saving_for_your_gran.html

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