According to a recent Legg Mason study, two out of every three grandparents with college-bound grandchildren plan to help with college costs. Over a half of grandparents who contribute do so with cash (52 percent), 45 percent dip into investment accounts, and 30 percent tap savings accounts and CDs. But today, many are turning to dedicated college savings accounts like 529 plans. (That is, those with an annual income of $50k or more.)
Financial advisors like Legg Mason are encouraging their senior clients to use 529 plans because there are many benefits (and of course additional fees to implement such plans, for advisors). By using 529 plans, grandparents get to keep control of their assets. They can contribute on a tax-deferred basis, get to say what they want the money to go towards (tuition, fees, room, board, books) and to which schools (only those “eligible institutions”). The trick is to educate the grandparents. Only 16 percent of those surveyed claimed to be knowledgeable about 529 plans.