If you’re banking on a monetary gift to help pay for a major expense, I have a warning for you: Always have a backup plan.
I was rather disheartened to receive an email from a reader distraught about a situation with her in-laws, who have saved a substantial amount of money for their grandchildren in 529 college-savings plans.
The reader’s eldest child is about to start college in the fall. She was accepted into an in-state college and has received a state-sponsored academic scholarship that covers tuition. Another scholarship from the university will pay for school fees. So the only other major expense is room and board.
No problem, the reader and her husband thought, since the 529 money saved by the grandparents would be more than enough for four years of on-campus housing. Under a 529 plan, if the money is used for qualified educational expenses, including room and board, the earnings are not taxed.
Then came unsettling news due to strained relations in the family.
“My in-laws have just informed us that they are not sure they are going to release any 529 funds from the account earmarked for our daughter’s college,” the mother wrote, who said that the plan was opened 18 years ago and has been completely funded by the grandparents.