Grandparents Helping with College Costs

00:01.00

Amy

Every week. It's our poll to share financial information that helps you in both your life and financial vineyard. We hope it takes you from your roots to the journey of your binds and the influences in the air that helped craft your delicious life. Like wine life and finances have different palates that should be celebrated and not judged welcome to this edition of wine and dime with Amy Irvan and Rebecca aka Becky Eson welcome back Becky.

00:28.99

Becky

Hey it's good to be back.

00:32.40

Amy

We are heading into a busy back to school season I cannot believe that we're talking about that. It seems like this year is just flown By. And by the time this podcast is being released some of the kids are probably already back at school back to college all that kind of stuff is going on and it seems like we were just starting to talk about them getting out of school. And imagine into Summer break. So It's been a ah quick summer I think anything exciting or anything that's going on. You know, with regards that you've heard from clients anything around back to school or back to college or anything like that.

01:15.78

Becky

Just the typical you know, um nerves of you know kids starting school for the None time or sending your kids off to college for the None time which now can be a huge transition.

01:22.69

Amy

Now.

01:31.22

Amy

It is a huge transition and before we dive into that particular topic of how you might actually fund some of that. Um, when we're recording this podcast. It's in July it's i'm.

01:33.45

Becky

Um.

01:46.83

Amy

Literally having out on our vacation to Oregon with lots of good wine tips I'll have when I come back. But right now I'm I'm reserving that any good beverages that you are drinking this summer that would cool your palate in the in the heat of it as we're recording. Are any good fall drinks that you have.

02:05.21

Becky

Um, yeah, nothing to maybe it's a nice coffee so it's nice and refreshing. Yeah, my favorite is vanilla now.

02:08.21

Amy

Um, are you a flavored coffee. Yeah vanilla. Okay, and do you like the vanilla flavored coffee or you like all the yummy creamer that goes in it.

02:21.47

Becky

The creamer and the syrup all the good stuff for you.

02:25.40

Amy

Ah, we all have our vices. You don't drink much at the office though you must drink it before you get there and that's it and if you're smart.

02:33.61

Becky

Um, yeah I try a limit the intake.

02:40.34

Amy

Um, like the rest of us are lay in bed at night like wella. We shouldn't have had that extra cup of coffee. You're sleeping family hopefully well I know one of the things that we wanted to talk about today. And particularly around grandparents helping with college costs through none other savings plans that seems to be a topic that comes up a lot even for our clients that are you know, still working and and their children are going off to school. We're hearing more and more that grandparents want to help. Fund education either through 34 or other savings options. So I thought it would be good for us to talk a little bit about that and it might not even be just college. It could be daycare. It could be pre-k it could be private school or anything like that but not all states have the same roles around. You know how you can use five Twenty Nine s for those k through None expenses. There's different states have different roles but there are you can use those five Twenty Nine s in some states for those kinds of costs. So I thought I'd be good for us to dig in just a little bit. Maybe give some ideas to the listeners on. Especially if they are grandparents on ways that they can help out with such a large cost. Um that that that you know a lot of our our clients and courts. It's one of the largest investments that is made in next to most. But most people's homes. So if you think about the cost of education over the course of a child's elementary and primary school education and then add on college you're talking a couple hundred thousand dollars most so any thoughts that you have around that particular topic that you wanted to share.

04:23.36

Becky

Um, yeah I think it's you know awesome when grandparents are able to help fund a college expense. You know as you mentioned it's very costly and we live in a society where um. You know there's a lot of emphasis on going to college and also at the same time while kids are young. We live in a time when it's not uncommon for grandparents to over gift like physical gifts to the point where kids may not use them. So. You know if you can help your kid or grandchild later on in life by saving in a five twenty nine plan that may be None of the most beneficial gifts that you could give.

05:08.84

Amy

Um, well how early can somebody actually fund a None

05:16.61

Becky

Yeah, so I mean really, you can start at any time. Um, you know you could start right at Birth if you wanted to and you could put it in your name or you know if you're um, grandchild's parent. So most likely you're.

05:24.62

Amy

Are.

05:35.75

Becky

Um, child or in-law. Um, if they had a five twenty nine plan open. You could contribute to theirs or um I mean you could like the grandchild could also be the account owner. However, that's not something that we generally see.

05:47.56

Amy

Um, easy. Yeah,, that's that's pretty rare to have them be the account holder right? I mean it's I mean technically I suppose if the grandparents wanted to they could start I mean you want to be careful because you don't want to assume that your children are going to have children. But if it's a known thing. Technically the grandparent could open their account for themselves right? So They could be the owner and the beneficiary and then when the grandchild was born. They could actually fund or they could change the beneficiary to the grandchild I mean that I Guess. You know, answer my question about how soon can you open one but it is nice to not have to go through that extra leg work. So As long as you have some can get some basic information from the parents then you could as soon as they have a social securityity number you could technically fund the accounts right.

06:45.13

Becky

Um, yeah, and you make a great point that um, you can always change the beneficiary So You know if you did want to open it beforehand like you do have that option or you can change it down the road. If your grandchild doesn't end up going to school.

07:03.96

Amy

e average cost of college is $: 30000

08:45.79

Becky

Yeah, so um, the biggest benefit is if you strategize and if you wait to actually have your grandchild use that money until their last two years of college then there's a benefit because it wouldn't count in a. Um, students financial aid. Um, that is a big deal. But again you want to be very careful about you know, not dipping into that money beforehand if you have other options.

09:07.34

Amy

Um, well that's a big deal.

09:18.54

Amy

Um, what are some of the other ways that grandparents can save her other than None and by the way are there any downsides to grandparents saving. In fact, when and plans.

09:32.15

Becky

Um, you know one of the downsides is that if that grandchild doesn't go to college like yes, you can change beneficiaries or you can take the money out and you would incur a 10% penalty on the earnings. Um, but you know maybe that grandchild may feel like you're they're not going to actually get that gift or that money. So I mean that's a potential downside.

09:58.96

Amy

Um, yeah, and I think None thing you could always do in that situation is change the owner. You know so you could change the owner to the grandchild they could turn around if they didn't want to use it for qualified educational expenses. They could turn around and cash it out for non-qualified they would at least be the ones paying the tax on it. They'd get it but they would be the None paying the tax on it and maybe they'd just hang on to the account for a while. Maybe they'll go to college later or maybe they'll Utiliz use ah utilize it for trade school some of the changes that have happened with none plans have been very helpful from that perspective. So um. You know it's not always the the None thing that I often you know encourage grandparents to do is name a successor owner so if something should happen to them prior to the kids going off grandkids going off to college. There's somebody else who can step in and often it's. Like if it's grandfather that's doing it. You have a grandmother be the successor and then you might even want a none successor that's like the parents or something like that are there other ways that grandparents might be able to help or save for the cost of education.

11:12.76

Becky

Um, yeah, so um, you know 5 twenty nine plans are one of the most common for education but you could also open um savings accounts or you could purchase um saving bonds.

11:22.54

Amy

Um, o.

11:29.96

Becky

Like right now there's a lot of talk about the inflation savings bonds because of how high inflation is right now. Um, you know that's one option.

11:33.83

Amy

Um, again, my name.

11:43.27

Amy

There's some tricks to that right? I mean there's some tricks to keeping that money Taxf free for education purposes for savings. Bonds So you'll you'll want to dig into that a little bit to know how to do that properly um to make sure that because everybody thinks so savings bonds if you use them for Education. They're tax-free. But there's. Are only tax free under certain circumstances. So you'll want to want to dig into that before you you know make that commitment. We Also talk to people sometimes about brokerage accounts right? Just traditional brokerage accounts.

12:13.37

Becky

Yeah yep, um those are another great option. Um, you can even do a custodial brokerage account and that's a great way of allowing your grandchild to be interactive with the investments.

12:20.69

Amy

Are.

12:31.40

Becky

And not only say for their education but in the meantime teach them. You know the impact of compounding interest and you know making recurring contributions. Yeah, absolutely.

12:33.35

Amy

Um, and.

12:41.12

Amy

And patients with the markets when they correct showing them those cycles of of up and down cycles when they're young younger so that as they get older. They understand. That's what the markets often do and if they are willing to be patient. Waited out. Ah, historically markets have come back and are there downsides to the custodial accounts.

13:03.26

Becky

Um, um, downside is that you know it's in both of your names. So you know they may not have complete control.

13:20.37

Amy

Um I think too is that it it depending on how the Rover gons open. It could be viewed as the child's asset instead of the grandparents assets.

13:22.70

Becky

Over the account but at the same time that can be a great thing.

13:37.27

Amy

Essentially and they would count more in financial aid. Um than you know like if it was if it's it's grandparents Asset. It doesn't count at all if it's a child's asset then it does count as an asset that needs to be utilized, but that that's it could also be used before them. Right? It could also be used for um college applications. It could be as long as it's used for the benefit of the child as a custodial count and if it's not used at all. It gets passed to them without you know, just it becomes their account eventually. Usually age 21 What are some of the other things that grandparents can do to help pay for education expenses anything off the top of your head.

14:23.58

Becky

Um, another option is a custodial roth ira so we're big fans of Roth Iras and you know if you have a grandchild who's working a great way to save for them is.

14:27.80

Amy

Um, oh yeah.

14:43.16

Becky

say your grandchild earns um $: 1000

14:49.63

Amy

Um, in here.

15:02.19

Becky

Then you could contribute $500 because you aren't exceeding the amount that they've contributed or that they've earned.

15:11.47

Amy

That's a great I Love a matching idea because that then gets them ready to for when they are starting to seek employment and it's just it's like okay I understand how this match works. And with regards to roth accounts because they're retirement accounts. They don't count in the financial aid calculation. They still get the benefit of seeing how stocks and bonds and different things like that go up and they can get to the Principal Just not the earnings without. Penalty and taxes. Maybe you're onto something there. But.

15:52.67

Becky

Yeah, and then if they don't need the money for college then they have a great start to the retirement account before they even really entered. You know the yeah.

15:58.51

Amy

Um, yeah, or the working field. Yeah, yeah, That's a great idea. Um, they could also do a traditional Ira but. In most cases we find that they don't need the text deduction and that's why we're kind of leaning on the raw fire side of things remind the listeners. What the the limits are to roth Ira contributions.

16:23.24

Becky

Yeah, so um, for: 2020

16:48.59

Amy

So if you only earn: 3000

16:52.60

Becky

Um, right.

17:07.79

Amy

If if grandpars are looking to put some money away and they're saying well well for lack of a better term match what you earn if you save say a thousand. We'll give you a thousand I mean that's a pretty good deal.

17:22.55

Becky

Um, yeah, it absolutely is.

17:24.84

Amy

So kind of circling back around the reason that we wanted to talk about this this month. It was particularly because we're thinking back to school. Um, it's sort of the theme of the month for lack of a better term and we really wanted to. Talk about grandparents helping out with college costs through five Twenty Nine s and other savings vehicles are savings plans is there anything else that we should or any tips that we should give to grandparents is they're thinking about investing this way.

17:59.92

Becky

Yeah, um, if you can have conversations with your grandchildren about money. Um, money can be a very touchy subject for many people. There's a lot of emotion behind it. But if you can explain to your grandkids. Maybe what you're doing and why you're saving for them and they may even be more appreciative of that money later on.

18:26.61

Amy

Um, yeah, how would you encourage people to talk to their grandkids without the grandkids or sort of like rolling their eyes at the situation.

18:37.19

Becky

Um, yeah, um, it really depends like on the individual you know you know your grandchildren but you know speaking from um, my personal life I remember um, winning some money.

18:44.51

Amy

Um, and.

18:55.54

Becky

A small amount fifty bucks and the None thing my grandpa said to me and he happened to be there with me when I won it he goes we should go down tomorrow to the bank and buy a savings bond and then he explained why and I you know to this day i.

19:00.46

Amy

Um, true.

19:15.46

Becky

Continuously think about that None money lesson that he shared with me. Um and he said it in a very open way as to you know you can do it if you want but you don't have to but here's why you should or why you shouldn't.

19:16.42

Amy

Um, yeah, what a gift.

19:31.15

Amy

Um, do you? Um, so hearing you say that you won something and I'm sure it wasn't a raffle or something like that it would have been a competition that you were part of right I know Becky does not gamble money.

19:42.47

Becky

Um, yeah.

19:50.65

Amy

So so thinking just about it from an idea of you might want to consider this you know here's the reasons why the pros and the cons do you recall like the 1 thing that he said to you that was like I kind of like that idea.

20:05.28

Becky

Yeah, so he explained that you know if I went down and purchased a $50 savings bond that eventually or if I put $50 into one eventually be $100 and so he was explaining like you know, really the compounding.

20:16.49

Amy

Um, who. Are moving.

20:23.83

Becky

Interest or doubling um and he did talk about how long it would take but you know at the time I wasn't used to having cash so I was like well what's the difference if I don't have it.

20:28.44

Amy

Um.

20:37.90

Amy

What a great so he kind of talked about the fact that basically savings funds kind of double in face value right? So if you spend $25 you get $50 Ultimately, it does take some time to grow but depending on when you won that and when interest rates are that that really makes a difference Too. You know, like right now. Savings Bonds have a really decent interest rate is so sheated with them. So It's It's a great time to be thinking about stuff like that Any other final tips that you would suggest to people if they're you know, thinking about even what? But what about parents talking to grandparents about gifting in that manner. Is there A ah good way to bring that up to the grandparents. Do you think.

21:22.16

Becky

Yeah I think being honest and expressing like you know if your kids want something for a holiday or like a good report card or something um, being honest with the grandparents about.

21:33.73

Amy

Um, remember.

21:41.00

Becky

Why gift you know may not be as beneficial as the five Twenty nine like maybe they already have a lot of things. Um.

21:47.83

Amy

Um, yeah and I don't know you know I've been a big one. So I'm such a boring gift giver when it comes to stuff like that. But for a lot of people when they have their like beauty showers or when their children are born. I will often send them a if I know they already have a none I'll just send them like or once the time they don't I'll send them an application for a five twenty nine plan with a check to get the account open. Because I know that you know sometimes just opening the account is the biggest step um and you know I just for me I because I don't understand a lot of the stuff that's out there anymore and I don't really know how it's used or where it's beneficial I just have always been one to kind of do that as a gift. Um, for people when they when they've either had a ah new child or having their none child. Um and I know that there's ways that you can actually like add to that in the future if you want grandparents to do that sort of thing when they're real little. They don't know if they're getting a gift or not. I mean real little the first couple years. They don't know that and I think that's when the money is most impactful because it does have the power to grow. So maybe having a conversation with if you're gonna be a new parent having a conversation with your parents about How thankful you are for anything that they want to do for you but your kids will be really thankful for and None ears if you've contributed for three or four years before they're old enough to. To know and I one of the best ways to do that is just through like a monthly contribution in my opinion. Twenty five bucks a month to a five twenty nine plan doesn't sound like a whole lot. But it's amazing. How much it can grow to be I've been doing that for my nieces and nephews for years. And when I look at their account balances right? Now. It's not going to pay for their entire education but it's probably going to pay for at least one semester which hey that's something right.

24:08.10

Becky

Yeah, that's awesome. That's what a gift.

24:11.31

Amy

I mean I did just when they were little I'm like I don't know to get a 2 year old so I don't know if to get a baby you know other than they have lots of like clothes and diapers and stuff like that. What do they actually. Need besides the big stuff so that was kind of my way of doing it and I think a lot of grandparents probably think the same way. Well Becky. Thank you so much for sharing your ideas and thoughts with the listeners on you know this particular topic. We hope that everybody listening today found this helpful. We hope the tips that we shared with you are helpful. As always if you have any questions that you'd like answer please feel free to send us an email info at rooted http://pg.com and we'll be sure to put those questions to the test and future podcasts or asking for a friend blog. Also if you. Have just a moment and can hop on over to Itunes and rate the show the more people that rate the show the further up the realm that we get and people can find us and we can you know make sure that we're getting this information out there to as many people as possible. Thanks everyone and we hope that your backed school experience is as fun as your kids back-toschool experience or more fun. Maybe hope y'all have a wonderful fall season.