The Moneyist: My son asked me to set up a 529 plan for my 5-year-old granddaughter. But she says, ‘Who’s nana?’ Should I set up a college trust fund for a child who does not even know who I am?
Our family is rather a mess. It’s the usual in-law drama, unfortunately. We’ve worked with it for years and are resigned to being outlaws, rather than the in-laws. Our son recently suggested that we set up a college trust fund for his child. I have ducked and waffled on my answer. But I have good reason for my hesitance.
When we talk on the phone, and they ask their 5-year old daughter to be quiet because they are “talking to Nana,” the child pops up with, “Who’s Nana?” And they reply, “She’s daddy’s mommy, and your grandmother.” Obviously, we don’t get to see each other as often as I would like, but these calls always end the same way.
The girl stoutly says, “She’s not my grandma! Eleanor is my grandma!” (Her maternal grandmother.) And they let the statement go uncorrected. As the adult in the room, I never say anything — on the general principle that it’s unwise to correct other peoples’ children’s behavior. Might you have any thoughts on this?
Should I set up a college trust fund for a child who does not even know who I am?
You can’t hold a 5-year-old child responsible for what she says to her parents, whether or not she knows you can hear her on the other end of the line. Her world is very small, and if she has not seen you and has not developed a bond with you, it’s the adults in the room — both rooms, in fact — who are responsible for that. They include you, her son and daughter-in-law.
Perhaps your daughter-in-law is not an easy person to deal with, and she may feel the same way about you, but the most emotionally distant parents can often make amends for their past mistakes by becoming engaged grandparents. That requires cards on birthdays, and visits. And, once again, both parents and grandparents are responsible for making that happen.
The beauty of the grandparent/grandchild relationship is that it can exist independently of the relationship with the parents, if all parties agree to put the children first. If your son wants you to set up a 529 plan, it’s a good opportunity for you to tell him that it makes sense not to be a helicopter grandma if you’re contributing to your granddaughter’s college education.
“‘It makes sense not to be a helicopter grandma if you’re contributing to your granddaughter’s college education.’”
As my colleague Alessandra Malito points out, grandparents are ideal candidates to set up tax-advantaged 529 plans for their grandchildren. “When Grandma and Grandpa set up a 529 plan, which is a state-sponsored college tuition account, the assets don’t count against the child when they’re filling out their financial aid applications,” she writes.
“These accounts are also tax deductible in many states, which benefits the grandparents at tax time, and are a viable option for someone looking to give an inheritance with a specific purpose,” Malito adds. There are two kinds: prepaid plans for tuition at today’s rates for certain colleges, and a flexible savings plan for tuition, accommodation and, sometimes, textbooks.
To give you an idea of how popular they are and the financial commitment involved: More than $434 billion in assets were invested in 529 education-savings accounts last year, up 10% on the previous year, according to the College Savings Plans Network. The average account size was $30,287. The money withdrawn is tax-free if used for the approved education-related purposes.
Set up the 529 plan, if you can afford it. It’s bread on the water for your family. Seeing your grandchild graduate college should be “reward” enough.
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