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Tips for Investing in Your Grandchildren's Education

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Tips for Investing in Your Grandchildren's Education

For people of all ages, September often brings back-to-school vibes. Even if you're long out of school, when the weather starts to cool and the very first hints of fall arrive, you may foster memories of new shoes, new school supplies, and returning to the hustle of studies and school friendships.

Even in 2020, when the COVID-19 pandemic has set school districts scrambling for safe ways to open, you may have seen signs of this back-to-school season. Grandchildren or others in your life may have returned to school, whether online or off, or you might be seeing news reports about school openings or advertisements for back-to-school sales.

Seniors with grandchildren or other young loved ones might be feeling a call to help with education. One way you can do so is by investing in your loved one's education, particularly in their college savings. There are many ways to go about this for people of all different means. Here are some options you can choose from if you want to invest in your grandchild's education from your assisted living community.

1. Help fund a 529 account.

If no one has set up a 529 account for a grandchild or other relative, consider doing so. A 529 account is a tax-advantaged investment account. That means you or other people deposit money into it, and the earnings on those investments are not taxed. Withdrawals that are used for qualified educational purposes are also not taxed.

You can help fund a 529 account even if someone else set it up. And if you have the means to do so and want to superfund a 529 account, you can take advantage of a gift-tax benefit. Here's how it works:

  • Normally, if you give someone more than $15,000 in a year (as of 2020), you must pay taxes on the gift amount over that threshold.
  • Giving to a 529 account lets you use a 5-year average. That means you can give up to $75,000 total the first year and not pay a gift tax as long as you don't give any more to that person in the next four years.
  • Superfunding provides a way to maximize the amount in a 529 account as early as possible so it has time to build.

When you're considering giving or investing this level of money in someone else's education — or anything — it can be a good idea to consult with a financial adviser. You want to ensure you're investing wisely and that you're not leaving yourself at financial risk in doing so.

2. Purchase a savings bond.

Not everyone can afford large investments, but any amount you contribute toward a 529 account can be helpful. For example, you might commit to contributing $25 a month, and that amount adds up to cover a lot of educational needs in the future.

Another option for smaller investments is a savings bond. The minimum purchase is $25, and the maximum investment is $10,000 annually. They mature over 30 years, although they can be cashed as early as one year after purchase. Cashing them less than five years from the date of purchase does forfeit three months of interest earned.

Government treasury bonds are typically considered low-risk investments. As such, they don't build huge returns. But they can be a fairly safe way to help fund future educational expenses.

3. Engage in micro-investing.

Another option if you want to invest with smaller amounts is micro-investing. You can use an app such as Acorns to automate this investing so you don't even have to think about it.

You simply download the app on a smartphone or tablet and sign up for an account. Once you set up your account, you enter a debit card that you want to tie to it. When you use that debit card to make purchases, the total purchase amount is rounded up to the nearest dollar, and the change is deposited into your Acorns investment account.

So, for example, if you buy $18.75 in groceries, it would round up to $19 and 25 cents would be invested in the account. It's a tiny amount, but it can add up over time without you having to do anything at all.

4. Invest in right-now educational opportunities.

Not all investments are about funding future tuition or college expenses, though. You can also invest in grandchildren right now by funding educational opportunities or items. Send them good books, for example, or offer to pay for a family membership to a local science museum. Sometimes, real-world experiences are as important as book learning — something most seniors are certainly aware of.

5. Encourage others by investing your time and interest.

Many times, you don't have to invest anything that costs money. Simply giving your own time and interest to encourage grandchildren or others to work hard and learn can be important. During phone calls, ask children what they're studying and what they can tell you about it. If you're able to visit with them, take time for meaningful discussions, reading books or asking about their schoolwork.

However you invest in education, remember that a little bit can go a long way, and often it's simply the fact that you are interested that makes a big difference.

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