Protecting college money for grandkids from spendthrift parent

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 Q. My son isn’t really responsible with money, but I want to gift funds for my grandchildren to use for their college education. What’s the best way to do it?

A. There are many ways to fund a college education, but you’re more limited if you also want to protect that money from someone who isn’t, as you put it, “really responsible with money.”

The good news is that the best way to protect the funds is also the most popular way to save for college these days: a 529 Plan.

“A 529 plan investment account is a plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild,” said Taylor Thomas, a certified financial planner with with Round Table Wealth Management in Westfield.

Additional features of 529 Plans make them a good option for your situation.

That’s because if you would like to retain control of when and how the assets are distributed, you can set up the 529 account and name yourself, rather than your son, as account owner — also known as the custodian — and your grandchild as the beneficiary, Thomas said.

Each grandchild should have his or her own 529 account, Thomas said.

There are additional advantages to this kind of college savings plan.

The earnings are not subject to federal tax, Thomas said, and generally not subject to state tax when used for qualified education expenses.

He said the the earlier an account is opened and funded, giving the investments more time to grow, the better.

“You can annually deposit into the 529 account up to gift exclusion amount per spouse — currently $14,000 in 2015 — or gift of up to five times the annual gift exclusion in a single year,” he said. “That means an individual can gift up to $70,000 in one year to a single child or grandchild and a married couple could gift $140,000 as of 2015, so long as no additional gifts to that beneficiary are made for five years.”

Some states offer a tax deduction for a portion of contributions made to a 529 account, but unfortunately, Thomas said, New Jersey is not one of these states.

Once the funds are in the account, you need to make sure that they are invested correctly.

Thomas said many plans offer an “age-based” investment option, which may provide for annual investment rebalancing as well as transitioning the portfolio to be more conservatively invested as the beneficiary approaches college-age.

“An investor in one of these funds should understand the types of investments in the portfolio, its current allocation given the age of the beneficiary, expense charges for this option and how the portfolio’s allocation will transition over time,” Thomas said. “There are many different plans available, so you might want to contact your financial planner to help you select one that works best for you.”

You can also look closely at these plans, and even compare them side by side, at

Email your questions to moc.p1568852238leHye1568852238noMJN1568852238@ksA1568852238.

This story was first posted in January 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.