NEW YORK (3/12/13)--With the number of parents capable of saving for their children's college education dwindling, financial planners are pitching grandparents on the benefits of college-savings plans.
According to Sallie Mae, about 14% of all families with children younger than age 18 used the college-savings 529 plans last year--unchanged from 2010, the last time the student loan lender published the report (MarketWatch Feb. 28.) Moreover, the deposits are small and getting smaller, down to $1,770 on average in 2012--a 6% drop in two years.
Traditionally, 529 plans are used by parents to save for their children's education. But the state-sponsored tax-advantaged investment accounts can be an attractive estate-planning tool, an efficient way for a senior to transfer assets while contributing to a grandchild's education.
Some of the benefits of 529 plans:
Grandparents considering using a 529 plan can take steps to minimize its impact on their grandchild's student-aid application. Grandparent-funded 529 plans are assessed heavily, either as a student asset or as student income at 25% to 50% a year, resulting in significantly less student aid (Forbes Feb. 28).
To avoid this outcome, grandparents can transfer the account to a 529 plan controlled by their grandchild's parents before the first student aid application is due. Parental 529 plans are assessed at 5% to 5.6% and do not show up as income for either the student or parents.
For example, if Grandma transferred $100,000 from her account to a 529 plan controlled by her granddaughter's father, it would cost the grandchild $5,000 on her first student aid application, as opposed to $25,000 or $50,000 had Grandma retained control
Plan ahead. A few states don't allow a transfer in account ownership, though it's usually possible to roll over the assets to a 529 plan in another state that does.
For more information, read "Do You Need a Financial Plan?" in the Home & Family Finance Resource Center.