How To Set Up A College Fund For Your Grandchildren, Even If They Aren’t Born Yet

This original article was written by Nancy L. Anderson , Forbes.

If your kids are all grown up, you may be starting to think about grandchildren. With the cost of college continuing to skyrocket, if you have the means, you may be trying to figure out the best way to contribute to the cost of your grandchildren’s educations.

Odds are your children aren’t going to have kids all at the same time. Yet the last thing you want is to fund an education account for the first grandchild while you’re working (and have plenty of cash flow) and have others come along later when you are retired and living off your nest egg (and money is tight).

You want your grandchildren to feel loved and supported by you, no matter where they fall in the birth order. Imagine being able to give each one of them a gift of textbooks at the start of each semester, a laptop after they receive their acceptance letters or a calculator or special tool they need for their trade.

With the Tax Cut and Jobs Act of 2017, you may also use these funds for up to $10,000 per year for K – 12 tuition for private schools.  Check with your tax advisor since all states may not currently comply.

You can set up education funds for all of your grandchildren—even if they aren’t born yet—with a simple workaround. Here’s how it works:

 You can set up a 529 plan for any US citizen (or green card holder) who has a valid U.S. Social Security number or taxpayer ID. There is a special feature in a 529 college savings plan that allows you to change the beneficiary at any time without a tax consequence, as long as the new beneficiary is a family member.

If the grandchild isn’t born yet, simply name your son or daughter as the beneficiary and start funding the account. When a baby comes along sometime in the future, change the beneficiary to be the child. Since the baby is a family member, you can change the beneficiary to your new grandchild.

My grandfather used to give shares of stock to me every year, not while I was in college but after I was married. Those shares helped me to buy my first home, and, more importantly, learn to invest. The greatest part of the gift was the conversation with my grandfather. We talked about what I was going to do with the funds, how to invest them, and my goals.

Contributing to a 529 for your grandkids can be a great opportunity for teaching them about money, saving, and your personal values. Also, it’s a direct connection to what’s going on in their lives. Young people are often focused on their circle of friends, so having this deep connection with you is important.

If you pass away, your adult child may take over the account in your place.  Simply name them as the successor owner when you establish the account. If they never end up having kids, no worries. They can use it themselves for graduate school or trade school in the future or give the funds to a relative (by changing the beneficiary.) Check with your plan administrator when you set up the 529 plan.

Cashing in is also an option—they’ll just pay taxes on the earnings portion and incur a 10% penalty on that gain (similar to an early IRA withdrawal).  Check with your tax advisor as there may be a state tax penalty.

Imagine having college savings accounts for each of your grandkids, all funded today. What a wonderful gift for future generations.