Grandparents Flocking to 529 College Savings Plans to Help Grandchildren

Legg Mason study finds strong commitment to help pay for college, but also big need for advice

Grandparents today are increasingly committed to pitching in to help pay their grandchildren’s college expenses, a study released Tuesday by Legg Mason found.

Two-thirds of those with college-bound grandchildren were saving or planning to save for their grandchildren’s future education, and 40% of this group was planning to use 529 college savngs plans, the survey found.

“When we asked whether grandparents used 529s to save for their own children’s needs, only 10% said yes,” John Kenney, head of Legg Mason’s Global Asset Allocation group, said in a statement. “But a generation later, as today’s grandparents become more investment savvy and 529s are more established, we are seeing an increased reliance on them.”

Legg Mason and its Scholars Choice 529 plan in partnership with GRAND Magazine sponsored an online survey of 1,006 respondents, which was conducted in mid-November using the Research Now panel.

Respondents were age 50 to 80 with a household income of more than $50,000, and had grandchildren under age 1, were expecting a grandchild in the next nine months, or had grandchildren currently enrolled in a four-year college or university or in a postgraduate program. Forty-six percent of respondents reported household income greater than $100,000.

A Desire to Help

The study found that the most appealing 529 plan features included these:

  • 54%: ability to contribute on a tax-deferred basis
  • 48%: flexibility to use the funds for a variety of college expenses
  • 45%: latitude to pay for tuition, fees, room, board, books and supplies
  • 33%: discretion to make small contributions that fit within grandparents’ budgets
  • 32%: freedom to use the funds at any college deemed an “eligible institution”
  • 30%: ability to retain control of the assets

Grandparents were saving for their grandchildren’s college education largely out of deep commitment to family and — if they had the ability — in hopes of paving the way toward a better life, while instilling the value of hard work, the survey found.

The desire to help appeared here to stay. Of respondents with grandchildren already in college, 39% were helping financially — a figure that leapt to 66% for grandparents who had grandchildren planning to attend college in the future.

However, despite their best intentions, grandparents were still not using of their funds efficiently to help pay for college, with potentially devastating effects on their retirement lifestyle.

Fifty-two percent of those with grandchildren in college or planning to go to college were drawing on cash as needed, 45% were dipping into investment accounts, and 30% were tapping savings accounts and CDs.

Grandparents Still Need Help

The survey found that grandparents lacked a true understanding of key 529 benefits, possibly explaining why more failed to incorporate them into their overall wealth management plan.

Only 16% of survey respondents claimed to be “knowledgeable or very knowledgeable” about 529s. Yet, even among this group, a majority did not recognize some of 529s’ most compelling benefits:

  • 72% did not know 529 accounts could be invested in plans outside their home state
  • 82% were unaware that unused funds could be rolled over for their own continuing education
  • 76% did not realize they could establish 529 plans for their own continuing education

Researchers found that many grandparents continued to go it alone, with 47% saying they had never sought advice on saving for their grandchildren’s college expenses.

When asked who had initially suggested a 529 plan, only 20% said a financial advisor had broached the topic.

 “There’s more room for grandparents and financial advisors to work together to ensure grandparents understand how 529 plans fit in,” Kenney said. “That means making sure grandparents grasp how a 529 plan could enhance their personal wealth management strategy."

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