college

College savings options for grandparents

Grandparents who don't want to be restrained by the $13,000 annual gift tax exclusion or the limited investment options of 529 plans may prefer this approach. However, unlike 529s and Coverdells, an UGMA account is considered an asset of the child, which could affect their financial aid status.

Cash is king?

Of course, many grandparents simply prefer to give cash to the grandkids. The MetLife survey found that most of the grandparents polled (40 percent) helped with "general support" while 26 percent gave toward education.

"Seventy-eight percent thought it was more important to distribute smaller gifts throughout the year and throughout their lifetime rather than leave a large lump sum as a legacy," says John Migliaccio, director of research for Mature Market Institute.

AARP family expert Amy Goyer, coordinator of the AARP Grandparent Information Center in Washington, D.C., attributes that trend in part to the struggling economy.

"I do think grandparents have cut back a bit on the kinds of investments they make," she says. "They're trying to be responsible about their own future."

Financial planner and author Ric Edelman favors cash giving, with one twist.

"Write checks directly to the college or university to avoid the $13,000 annual gift cap," he says.

That said, Edelman is convinced that most grandparents are aiming at the wrong target: Rather than invest in a college fund, they'll have a greater impact by putting money toward the grandchild's retirement.

Edelman estimates that a mere $5,000 minimum contribution into his Retirement InCome -- for Everyone Trust, known as a RIC-E -- or "Ricky" -- Trust, could grow to $2 million or more by the time that newborn grandchild retires.

"That makes it much easier for the grandchild to refocus their saving on college, buying homes or even getting into careers that perhaps are not as lucrative," Edelman says. "That could have a huge societal impact."

While you won't be around to bask in the moment, it's a sure bet your heirs will never forget your generosity.

"Not only will your grandchild remember you, but so will their children and grandchildren because of the size of the legacy you are leaving them," he says. "That is one way to provide a certain amount of immortality."

Jay MacDonald is a contributing editor based in Clearwater, Fla.

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