`Thanks' likely later for gift of 529 fund

November 25, 2007|By Steve Rosen | Steve Rosen,McClatchy-Tribune

Here's an idea guaranteed not to be on your grandchildren's holiday wish list - a 529 college savings account.

Here's a closer look at how grandparents can use 529 plans or two other approaches to help out on college costs:

Tax free

The most popular approach for helping the grandchildren pay for college is the 529 plan, which allows you to put away money tax-free for higher education expenses. Every state offers at least one 529 option. Maryland has two such plans. Grandparents can set up a 529 account or contribute to an existing plan opened by the grandchild's parents.

Money in a grandparent-owned 529 also isn't included as an asset on financial aid forms.

In addition, you can transfer the money to other grandchildren, or you could even take the money back, subject to taxes and a 10 percent penalty on the earnings.

You can give a grandchild up to $12,000 a year without filing a gift-tax return.

Direct tuition payments

If you have a college-age grandchild, consider paying tuition directly to the school. This strategy will not count against the $12,000 gift-tax ceiling.

Small change adds up

Upromise.com, Littlegrad.com and a handful of other online companies have established rebate programs that can feed money into a 529 or other educational savings products based on a percentage of your spending at participating merchants and services.

The rebates also can be applied to repay student loans.

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