A lot of grandparents want to give their grandchildren a boost before they’ve left the roost, and one of the best ways to do it is to help them save for college. The classic way to do this was to give a new baby some U.S. savings bonds. But since the turn of the millennium, savings bonds have gotten increasingly less popular.
The big reason why? U.S. savings bonds aren’t that great of an investment – in this economy, their interest rate barely keeps up with inflation.
Luckily for grandparents (and grandchildren) everywhere, there’s a much better option: 529 college savings plans.
What’s so great about 529 college savings plans?
1. You’re in control.
While your grandchildren will be listed as the plan’s beneficiary, you are still the owner of the account and retain control of the funds. This also means that if one of your grandchildren decides not to go to college, you can give those funds to one of your other grandchildren.
2. It has to be used for college.
With savings bonds, you could always hope that the kid would use them for college costs, but there was never a guarantee. The money in a 529 college savings plan, however, must be spent on qualified educational expenses, lest you incur income taxes and a 10% fee on your earnings.
3. The money can be used at any college.
Seriously, any college – as long as the U.S. Department of Education recognizes it as a college. That means any public or private universities, plus some online programs, foreign schools, and vocational programs.
4. You can use it as part of your estate planning.
Want to shed some money from your estate without losing control of the assets?
You can put $14,000 ($28,000 for couples) into the plan annually without hitting the gift tax. If you want to invest a lot more than that up front, when you open the plan you can "pre-pay" the next 5 years and invest a full $70,000 ($140,000 for couples).
Want more information about 529 college savings plans? Read our college savings guide for more information about 529 plans and other ways to help your grandchildren save for college.
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