If you’re excited about a new grandbaby but worry what the economy will be like when they’re ready for school, starting a 529 plan for their college education might make you their favorite grandparent—that is, when they’re old enough to understand what it is.
“After all, anyone can start a 529,” Peter S. Green wrote for The Wall Street Journal, “which is funded with after-tax income; the fund’s earnings and principal will be untaxed as long as the money goes to expenses that qualify as higher education.”
Parents can start one as well and might want to. But it’s a great option for grandparents that want to help their grandchildren financially but don’t want the money to go to something frivolous, estate lawyer Cameron Casey told Green. “Using a 529’s funds for something besides higher education will trigger a 10 percent penalty and make the earnings taxable,” he said.