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Jim Lentini: Grandparents can leave an education legacy

Posted: September 14, 2009 10:00 p.m.
Updated: September 15, 2009 4:55 a.m.
If you are a grandparent like me, you may want to leave something special for your grandchildren that they will appreciate and benefit from when they go off to college, even if you can't be here at that time.

According to a poll by Richard Day Research and Brusken/Audits & Surveys Worldwide, 60 percent of grandparents are more than willing to help with college expenses for their grandchildren, if asked.

And they are more likely to participate if the parents have already opened an education savings program.

Yet only 12 percent of parents with children in high school plan to ask grandparents to help with education expenses, according to another study by the same firm.

So it seems that parents need to take advantage of the "529" plans offered. Get a plan started and then discuss what your plans are with your children's grandparents.

The "529"plans offer opportunity to contribute much more than do the education IRA plan, which is very limited.

Another reason "529" plans appeal to grandparents is control. Unlike uniform gifts to minors or uniform transfers to minors, or UGMA/UTMA plans - in which the beneficiaries control the assets when they reach majority age - the grandparents control the account, can change beneficiary at any time, and have the opportunity to move money out of their estate into a tax-deferred account.

When the 529 plan started a few years ago, a married couple could give up to $22,000 a year per beneficiary without gift tax consequences. Under a special election, a couple could contribute up to $110,000 at one time by accelerating five years' worth of investments.

These amounts have increased since the inception of 529 plans, and below are highlights of the 529 plans that make them much more advantageous and flexible for control than the UGMA/UTMA plans:

n There's no limit to the number of beneficiaries allowed.

n Earnings grow free of federal tax. Withdrawals for qualified higher-education expenses are federally tax-free (effective through 2010 unless extended by Congress).

n Contributions remove assets from an estate, so the money is free from inheritance taxes.

If you still have any UTMA/UGMA plans, you should discuss rolling them into a 529 plan, which will give you the flexibility and control mentioned.

Parents and grandparents should check with their financial advisers to research the many 529 investment opportunities to provide for their children's and grandchildren's higher-education needs.

There's one guarantee: The cost of college has been increasing, and with our current financial problems we are seeing costs increasing more than they should under normal factors.

Jim Lentini is president of Lentini Insurance & Investments Inc. in Newhall. His column reflects his own views and not necessarily those of The Signal.


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