Best way to contribute financially to new grandchild?

[frugal-one]

I looked this up on Google and see that the 529 Fund ranks at the top if the kid is to go to college. However, we also have another set of grandparent who will, I am sure, contribute to this fund. I also see UTMA and UGMA funds as options for college too. Those are the tax exempt funds. If they don't go to college... give the gift of money (up to $14,000/year) and let them pay the taxes? We would want to be the guardians of the account and have control as to how the money is invested.

Oh, BTW, the new grand baby is a girl! Short and stout!

[razz]

Congratulations, Grandma! Whatever decision you make will be a good one as the costs of education rise for the little one.

[Tybee]

I went with UGMA's for my grandchildren. The money will be theirs, no strings attached, when they reach legal majority, which is different by state--one gets hers at 18, one at 21.

The downside is it counts against them for financial aid.

My preference would be that someday they use it to help buy a house, not college.

[frugal-one]

I went with UGMA's for my grandchildren. The money will be theirs, no strings attached, when they reach legal majority, which is different by state--one gets hers at 18, one at 21.

The downside is it counts against them for financial aid.

My preference would be that someday they use it to help buy a house, not college.

From what I understand.... using a UMA for other than college would incur a 10 percent penalty.

[Tybee]

From what I understand.... using a UMA for other than college would incur a 10 percent penalty.

I don't know about UMA, that is an unfamiliar term to me; there is no such penalty with an UGMA. Here's a good article about the UGMA:

http://www.investopedia.com/terms/u/ugma.asp

Okay, my bad, just went and checked the kids' statements, and I guess these are actually UTMAs. That is also in the article, the difference.

But there is no 10% penalty, and when I set them up (I had them for my children, too, and then they did use the money for college) the banker always says, "And you know of course that when they hit majority, they can go out and use it to buy a pickup truck, right?" I've heard that 5 times now.

But I like them--and my kids used them for college, and my grandchildren--who knows? It's there money. But no 10% penalty.

[Teacher Terry]

Congrats on the new grandbaby!

[beckyliz]

The annual gift of $14,000 is a gift, not taxable income.

[freshstart]

I wish my parents had set up 529s for my kids, every little bit helps and fund them instead of giving birthday gifts and such. they would talk about it but never got around to doing it. Congrats on the little one, enjoy!

[frugal-one]

Thanks all! Yes, we will enjoy!