Turn Your Teddy Bear Money Into an Educational Fund for Your Grandchildren’s Future

Education is very important to my family. My maternal grandparents went to college, Grandpa to become a minister and Grandma to be a teacher. My paternal grandma had a scholarship to art school, but turned it down to work to support her family. Their farm was taken by the bank during The Great Depression. My paternal grandpa also had to work to support his family during The Great Depression. He was unable to attend college, but he attended trade school to become a draftsman. Both sets of my grandparents wanted more for their children and encouraged each to attend college. Everyone did.

My mom’s folks went one step further. They paid for my mom’s college degree in the early 1960s when many women did not finish or have their degree. As a new wife and mother, my mother worked hard and graduated in three-and-half years with a teaching degree. My dad paid his way through school, working a night shift at a gas station, then at a factory, all while attending college classes during the day.   

When it was my turn to attend college, my parents paid for both my brother and me to go. They also paid for our master’s degrees. As I said, education is very important to my family. Graduating with a four-year degree and masters without any debt is a gift I can never repay.  As my Grandma Harris said, “The gift of an education can never be taken away.” She was right.

When my two daughters were born, we were just getting by. Putting money away for their college education was not a viable option. My parents, however, chose to contribute to college funds for each of their five granddaughters. They made an initial payment and contributed to the accounts until each girl went to college. All five granddaughters, including my daughters, were able to attend and graduate from four-year universities without debt, thanks mostly to my parents. Each said their education was the best gift they ever received from their grandparents.

When my oldest daughter had twins, I decided I wanted to look toward their future, too. I spoke with my financial adviser and he suggested I investigate an educational 529 account to save for a portion of their college tuition.

The point of this story is, if you are financially able, why not put some of that teddy bear money toward a college education (or trade school) account for your grandchildren. Education is the gift that keeps on giving, generation to generation.  

What is a 529 plan?

According to the U.S. Securities and Exchange Commission, “A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as ‘qualified tuition plans,’ are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.” 

What are the benefits of a 529 plan?

A benefit of an educational 529 plan is that it can only be used for college tuition, technical school, K-12 tuition, apprenticeships, loan repayment, and Qualified Education Expenses such as tuition, fees, room and board, books, course-specific fees, or supplies. You, the account owner, and not the beneficiary, control the money. That means your 18-year-old freshman must use the money for education and not a car. Any money not used can be disbursed to siblings’ education expenses, or passed to the next generation. 

In addition, the U.S. Securities and Exchange Commission noted that in 2019 the “Setting Every Community Up for Retirement Enhancement (SECURE) Act (2019) made some important changes to 529 plans. 

• It allows 529 plan distributions of up to $10,000 to repay qualified student loans of the beneficiary. An additional $10,000 can be used for the qualified student loans of each of the beneficiary’s siblings. The $10,000 cap is a lifetime – not annual – limit.

• It allows 529 plan distributions to pay for registered apprenticeship programs.”

While you cannot get a federal deduction for a 529, in 30 states a portion of your contributions can be deducted, or a credit given for contributions. Maryland, where I live, is one of these states. Plus, the college funds used for qualified expenses are not taxed federally or by states.

Every little bit helps. According to the College Savings Plans Network Research Report, saving before college saves a lot of money versus paying off a bill after graduating. There can be a vast difference between the cost of education when it’s been paid up front instead of on the backend with additional fees from loans.

When should you begin saving?

Now, but check with your personal financial planner before you begin anything regarding your finances to see the best way to do it. And if you can’t afford it, don’t do it. Your financial stability is most important.

If you do have extra income, contact the 529 program in your state. The earlier you begin contributing, the more your money will grow. Saving for College has a college savings calculator to help you determine how much a future college student will need to save and how much to contribute. Go to the college savings button to calculate how much a 529 will earn compared to a regular savings account.

Who can contribute?

According to The College Investor, anyone—a grandparent, aunt, uncle, or friend—can contribute to a 529. 

My monthly contributions are modest, but it is a start for my youngest grandchildren’s education. You do not have to contribute every month. Single payments are also allowed but check with your state to see all the plan’s rules.

Final thoughts

Your time is more important than your money, but if you have expendable income, consider helping prepare for your grandchildren’s future by contributing to a 529. My husband also put money in his will to give to our two oldest grandsons, and when he passed last year, that money was transferred to a college account for them. Leave a legacy that will help your grandchild start their future.

Next month

Next month we will look at sharing your musical tastes and talents with your grandchildren. If you love music as much as I do, send me your stories of you sharing your love for music with your grandchildren. You might become a grandparent influencer. Thank you for reading my blog.