Financial advisers and estate planners have all kinds of stories about retirees who insist on spending significant amounts of their savings on grandchildren. Too often, they fail to recognize the severity of the risk it poses for their own retirement security.
Another temptation is for grandparents to set up accounts under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act as a way to pay private-school expenses or for college costs such as tuition, books, and room and board.
However, many don’t realize that when their grandchild becomes an adult (age 18 or 21, depending on the state where the account was established), the money can be spent on anything the child wants, says Casey Weade, a financial planner with Fort Wayne, Ind.-based Howard Bailey Financial. The assets in these accounts are owned by the child. That also means the account can affect the amount of financial aid a college student may receive.
Weade says it makes more sense to set up a 529 college-savings plan that offers tax benefits when used for qualified college expenses, including tuition, books and housing. David Pitt, The Associated Press
