Grandparents can give grandkids financial gifts that last

0 Comments | Gazette, The (Colorado Springs), Oct 24, 2007 | by DAN SERRA

Many grandparents love to spoil grandchildren, but are they spoiling them in the wrong ways? A recent AARP survey found that the spoiling is likely to be driven by events, such as birthdays or holidays.

A gift that will last longer is often neglected -- a gift of financial security.

"There are many things grandparents may do that don't cost much - - from opening long-term investment accounts in their grandchildren's names, to naming them as beneficiaries, to gifting mutual fund shares instead of the next hot game console. In many cases, the issue is not giving more; it's giving better," AARP spokeswoman Nancy Smith said in a news release.

Even if a financial gift now is small, the power of compounding can supersize it for the future.

The AARP survey found that long-term savings and in- vestments were underused by grandparents. Only 22 percent of grandparents have opened a savings or investment account on behalf of a grandchild -- and grandparents who have done so were most likely to put money in a lower return investment like a bank savings account, the survey found.

Better ways grandparents can help include setting up a 529 college savings plan for each grandchild or directly paying a semester's tuition for a grandchild, said Patricia Addis, a certified public accountant and certified college planning specialist in Colorado Springs.

Addis also encourages grandparents to sit down with the grandchild's parents and a financial planner to make sure contributions toward education don't disqualify the student from financial aid.

Grandparents paying for college should pay the school directly instead of giving the grandchild the money, Addis said. Payments directly to a college are not subject to the $12,000 annual gift tax exclusion whereas money given to the grandchild will be subject to gift taxes if it's more than $12,000.

The advantage of a 529 plan with the grandchild named as the beneficiary is that the grandparents can get the money back if the child snubs college. There is a 10 percent penalty, however, on withdrawals not spent on college costs.

For results of AARP's grandparents' survey, go to www.aarpfinancial.com/grandparents.

BROKER VS. PLANNER

Through your working years when you had money to invest you may have worked with a stock broker to manage your investments. But now as retirement approaches, you need help getting the payoff.

That's the situation of one Gazette reader who asks whether he should stay with his broker or switch to an independent financial planner to help him manage his money in retirement.

The key phrase is managing money. A stockbroker is an expert in investing and has an interest in selling investments, while a financial planner is in business to guide consumers on all aspects of finances, from investing to making sure the money doesn't run out.

The authors of "What Color is Your Parachute for Retirement" say if an adviser is willing to do calculations for free, it's probably because the adviser earns a living by selling investments on commission. If an adviser is willing to do a calculation for a fee, it's probably because the adviser earns a living by doing calculations and is more likely to be an expert

planner than an expert salesperson.

Contact the writer: dan.serra@gazette.com

ONLINE

For a flier on the differences between broker and advisory accounts, see the attachment with this column on gazette.com.