In­vest in your grand­chil­dren’s fu­tures

The Covington News - - Front page -

This time of year marks Na­tional Grand­par­ent’s Day. While not as well known as Mother’s Day or Fa­ther’s Day, Grand­par­ents Day is, none­the­less a re­minder to us of the im­por­tance of grand­par­ents in the lives of their grand­chil­dren. If you’re a grand­par­ent your­self, you might want to use this day as a start­ing point to con­sider how you can best help your own grand­chil­dren on their jour­ney through life.

Of course, one of the most gen­er­ous things you can do is to help your grand­chil­dren pay for col­lege. A per­son with a bach­e­lor’s de­gree will earn, on av­er­age, al­most twice as much over a life­time as work­ers with a high school diploma, ac­cord­ing to the U.S. Cen­sus Bureau. And over the past sev­eral years, col­lege costs have risen sig­nif­i­cantly.

To help meet th­ese costs, you might want to con­sider open­ing a Sec­tion 529 sav­ings plan. Your con­tri­bu­tions may be de­ductible on your state taxes, and all earn­ings and with­drawals are tax-free, as long as the money is used for qual­i­fied higher ed­u­ca­tion ex­penses. With­drawals for other types of ex­penses may be sub­ject to fed­eral and state taxes plus a 10 per­cent penalty. And since you can open a Sec­tion 529 plan in your name, you’ll main­tain con­trol over the funds, so if the grand­child who is the plan’s ben­e­fi­ciary de­cides against go­ing to col­lege, you can switch the ben­e­fi­ciary des­ig­na­tion to an­other grand­child.

While sav­ing for col­lege may be more of a near-term goal for your grand­chil­dren, they’ll also have other ob­jec­tives, such as sav­ing for re­tire­ment — and you can help them out in that area, too. For in­stance, you may want to help them fund a Roth IRA. Since your grand­chil­dren are young, they have many decades ahead of them to take ad­van­tage of this re­tire­ment ve­hi­cle, which of­fers tax-free earn­ings, pro­vided your grand­chil­dren don’t make with­drawals un­til they’re 59-1/2.

To qual­ify for a Roth IRA, your grand­chil­dren just need to be old enough to earn some money. They would have to es­tab­lish the Roth IRA in their names, but you could con­trib­ute to it. The con­tri­bu­tion limit is the lesser of $5,000 per year or the amount of an­nual earned in­come.

Help­ing your grand­chil­dren pay for col­lege or save for re­tire­ment will bring you great sat­is­fac­tion dur­ing your life­time. But once you’re gone, you can still pro­vide valu­able fi­nan­cial re­sources that may help your grand­chil­dren achieve other goals, such as fur­ther­ing their ed­u­ca­tion or mak­ing a down pay­ment on a home.

Specif­i­cally, you might want to pass on some of your as­sets to your grand­chil­dren through a liv­ing trust, which can avoid pro­bate and gives you great con­trol over how — and when — you want your wealth dis­trib­uted. And if you name your grand­chil­dren ben­e­fi­cia­ries of a life in­sur­ance pol­icy owned by a trust, the pro­ceeds will not typ­i­cally be sub­ject to es­tate or in­come taxes. (Keep in mind, though, that you will need to con­sult with a qual­i­fied le­gal ad­vi­sor be­fore es­tab­lish­ing a liv­ing trust, which can be a com­plex ar­range­ment. Ed­ward Jones does

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