I am 65 and my grandchild is now 2. When she was 3 months old I took out a fixed annuity with a 3% guarantee yearly in her name with my wife as the owner (Grandchild is the annuitant.) Now as I read more and more, it looks like there may be very high tax consequences when she takes out the money. We are putting away $120 per month. By the way, I am also a resident of Fl so I had taken out this annuity in Fl with a company that does not do business in NY. Any suggestions to change this without losing any money so that my grandchild’s savings for college are not burdened with taxes?
Need help on Education Fund for Grandchild
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But your major problem is that it is likely that the mother will not be over 59 1/2 by the time the child goes to college.
Annuities are subject to a 10% penalty tax if the owner accesses it before age 59 1/2.
So on top of the income tax there will most likely be an extra 10% tax added on.
If you want to use an Annuity it is best to have the Grandparents as the Owners. You can do joint ownership between the grandfather/grandmother, or you could just have one as the Owner and the other as the beneficiary. Assuming that the grandparents are still living when the child goes to college, this would eliminate the 10% penalty.
But, you might want to look into a Permanent Life Insurance policy that builds Cash Value. The Cash Value will grow tax-deferred and can be accessed tax-free. If you take it out on the life of the parents, it would provide an extra layer of protection for the childs education. And you can expect 3%-4% growth if the policy is designed properly.
Feel free to contact me at my website http://fixedannuity4me.com if you would like more info.
Funding a college education can be very expensive. Grandparents can help. The money that the grandparent saves should be in their name, not the student’s, unless you are using a Section 529 plan. The contributions that a grandparent makes to the child’s education should be delayed until the final year of undergraduate education; otherwise it is included in the Expected Family Contribution as determined from the FAFSA form. An annuity is a good way to accumulate these funds. One of the grandparents should be the annuitant.