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Helping grandkids with college

Created date

May 30th, 2009

In today s competitive job market, getting a college degree seems more important than ever. But with tuition costs on the rise, a diploma from a private institution often has a daunting six-figure price tag. If you re a concerned grandparent who wants to help your grandchildren pay for school, there are many ways to contribute. But you need to do your homework to make sure you re making the right choices for your family. Avoiding surprises Maybe you set up 529 College Savings Plans while your little ones were still in diapers which experts say is one of the smartest things you can do as a grandparent. However, Philip Grayton, a Massachusetts-based advisor who specializes in education planning, says there are still factors you should consider to avoid surprises later. For example, maybe you have $100,000 saved and assume your granddaughter will go to the same state school your children attended. But what if she is an overachiever with her sights set on the Ivy League? "If you re going to Harvard, $100,000 may only pay for two years," Grayton says. You also need to consider the impact investments in your grandchildren s names will have on their eligibility for financial aid. "The pitfall of putting money directly in a child s account is when it comes time to fill out financial aid forms, gift money can count against the student," Grayton says. If that is the case, grandparents may want to consider making tuition payments directly to the school. Tied to the market In today s turbulent economy, some grandparents are worried that their investment accounts are shrinking. Just like 401(k) plans, 529 savings accounts are tied to fluctuations in the stock market. Bambi Holzer, a California advisor who has written four financial advice books, says there is no need to panic. But, she says, you might need to make some decisions based on your family s own circumstances. If your grandchildren are young, Holzer says the down market is a "buying opportunity" because you can purchase investments at deeply discounted rates. "Because of this being such a great buying opportunity, if grandparents can afford to put more money aside now and put less in future years when the market is stronger, I would take advantage of that," Holzer says. Frank and open Holzer also reminds grandparents not to view paying for college as an obligation. If your own retirement savings are dwindling, you may need to have an honest discussion about what you can realistically afford at this point. Whatever your family s financial situation, Holzer says it s important to have annual conversations about your strategy for paying for college. Holzer also recommends sending investment account statements directly to your own children, so they know how much money you intend to contribute to tuition costs for the grandkids. "You have to have this open conversation," Holzer says. "It should not be an expectation that you will pay for college."