Any day now my relatives are going to start asking me what they should buy my kids for the holidays. Normally, I don't like to make requests. It feels a bit greedy to me. But this year, I may make an exception. Rather than spoil my girls with toys, I would prefer they receive checks for their college savings accounts.
Before you stop reading, understand that I'm not trying to spoil the holidays for my children. I still want them to experience the thrill of opening presents. I also want to give the grandparents an opportunity to see their grandchildren's faces light up when they open a box from Nana and Papa.
But let's be honest, if you're like me and have young children, then you know that they get equally excited by a $10 toy as one that costs 10 times as much. And my one-year-old still prefers the wrapping paper over just about any gift we could buy her. So I'm hoping my family will understand when I ask them to purchase token trinkets and write out a check for the rest of the money they were planning to spend.
My plan serves several purposes. First, I like the idea of my children getting used to the idea that the holidays aren't just about receiving scores of gifts. I want them to be grateful for the fewer presents they do receive and for the time they get to spend with their extended family.
Second, I want to use every opportunity we can to provide our children with the greatest gift of all, a college degree. And as the kids get older, I would like my relatives to explain that they are contributing to the girls' 529 savings accounts so that they know that everyone in the family feels education is important.
As for my relatives, I don't anticipate they'll give particularly large gifts and I certainly hope I don't put pressure on them to do so by making a request for a check. My family tends to be more generous at other times of the year, including at birthdays. But if your loved ones tend to do their "giving" at Christmas and you like the idea of directing a present towards a child's college savings account, here are a few rules you should understand:
College Savings Accounts
If you've already opened up a 529 savings plan for your kid, chances are you'll have to set up a new one to receive gifts from relatives. Why? According to Joe Hurley, the founder of Savingforcollege.com, an account opened up by a parent is typically owned by Mom or Dad. But if your relatives are writing a check directly to your children, your sons or daughters own the gift and that money should go into a custodial 529 account. (Read this past post for more on where to invest a grandparent's college contribution.)
If your parents are making significant contributions toward your children's college education, don't be surprised if they want some control over the money. If this is the case, grandparents always have the option of opening up a 529 savings account for a grandchild and naming themselves as the owner.
How much can Grandma give? For 2010, individuals are allowed to give someone $13,000 (or a couple can give $26,000) before activating the gift tax. If for some reason your Mom wants to give even more -- perhaps she's doing some estate planning -- Uncle Sam allows a $1 million per donee lifetime gift tax exemption.
Grandparents with older grandchildren have another option. If a child is already in college, Grandma can write out a check directly to the school for tuition without triggering any gift tax. (Incidentally, this rule holds true for any educational institution.)
As for those token toys, I think I'll just tell my parents to use their own judgment.
Do you pass along your kids' holiday wish list to your relatives?
Stacey Bradford is the author of The Wall Street Journal Financial Guidebook for New Parents.
Toy Phone image courtesy of Flickr, CC 2.0.
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