Many grandparents of today are experiencing their second go at parenthood.
Here are some pointers that you can consider when you are experiencing or about to experience your second parenthood with its partnered economic stress:
1. Set Up an Educational Plan
Aside from providing food, clothing and shelter for your grandchildren, you also need to consider your grandchildren’s education, which involves a huge amount of money.
Currently, college education at public institutions costs about $15,100 per year, while it is around $32,900 in private colleges. By the year 2030, it is expected to rise to more than $44,000 per year, with private colleges possibly doubling the amount. In other words, a four-year college degree could sum up to more than $205,000 in 13 to 15 years, according to US News.
Given the figures above, a great deal of planning is required in order to provide the next generation the education that they need, and here is where the college savings plan known as Section 529 comes into play.
Investing in 529 Plan
The 529 plan was designed and set up by the federal government to “encourage saving for future college costs.” Also called “qualified tuition plans,” these are sponsored by educational institutions, state agencies, and states, according to the the Securities and Exchange Commission of the United States, and are authorized by the Internal Revenue Code.
Aside from providing Americans with an option to save for the college education of their qualifying family member, there are many other advantages to the 529 plan, namely:
- You can enjoy a tax-free incentive once you use it to pay for college education.
- You may avail of a tax savings, full or partial, for your contributions so be sure to check your local government if they are offering tax breaks.
- You, as the donor, have complete control of the account and it cannot be touched by the beneficiary.
- This is completely opposite of a custodial account, which the beneficiary will have access to once they reach legal age.
- You can also withdraw funds if the need arises. However, untimely withdrawals will gain an income tax, plus a penalty tax of 10 percent.
- You can set it up to automatically draft from your bank account or payroll.
- Last but not the least, you can change your 529 plan options twice per calendar year.
Additionally, there are two types of 529 plans that you can choose from: a Prepaid Tuition Plan or a College Savings Plan.
- Prepaid Tuition Plan
– The tuition fee price is locked so it can only be used for certain public and private colleges and universities.
– The plan only covers tuition and other required fees. Room and board fees are optional.
– Predefined lump sum.
– State government backs up investment.
– The Local government requires the owner or beneficiary to be a resident of the state.
- College Tuition Plan
– College cost has no limitation.
– All college expenses are covered (tuition, books, computers, room and board, and other required fees).
– No contribution limits, can go up to more than $200,000.
– The state does not guarantee investment and is open to market risk.
– Not necessary required to be a resident of the state, but will have limited purchase options.
2. Set Up a Trust Fund
A trust fund is also an option if you want to secure the financial future of your grandchildren. In the most basic explanation, it is similar to a savings account for your beneficiary or your grandchildren, with strings attached. In a legal document, you specify your wishes and the specific way the money should be used. You then deposit regular amounts into the fund.
Although this is not precisely tailored for college education, many adults look at it as an instrument that will become available once their children reach the age of maturity, which is around their college years. It is also important to note that once the transfers are made, it becomes irrevocable. Moreover, if your grandchildren decide not to go to college, they will still receive their gifts.
There is a notion that trust funds are for individuals with a high net worth. This is not the case since there is the Kiss Trust, which also an irrevocable trust that is designed for lower net-worth individuals.
If you are concerned primarily about your grandkids’ education, you can consider UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Acts) custodial accounts. UGMA gifts and transfers are limited to bank deposits, insurance policies,securities and mutual funds. On the other hand, UTMA allows any kind of asset to be given to a minor, even real estates.
3. Plan strategically
Aside from preparing for their education and financial security, you should also take into account the financial responsibilities that come with caring for your grandchildren. Long-term and short-term planning is needed so that you won’t go beyond your budget and you can also make the most out of available incentives.
According to Sun Trust, you will be entitled to several tax breaks such as earned income credit and the child and dependent care credit, whether you are working or not.
Additionally, Earned Income Tax Credit (EITC) of $1,000 per child under the age of 17 is offered for low income families. If you are above the income limit, you may also be suitable for the Child Tax Credit or the Child and Dependent Care Credit. This is in addition to other tax breaks that you can avail from the state government, Pregnancy Weekly added.
You can also check your Social Security or your state if you are entitled to assistance programs.
Moreover, you need to take the time to adjust your investment portfolio, if you have one, in order to accommodate your grandchildren. The adjustment should not to make your portfolio too conservative – to generate enough funds that will be available immediately – but not too aggressive either that it would affect your long-term financial needs.
Creating a budget and sticking with it is also advised, especially if you are already retired and are depending only on fixed and passive incomes. You should also look into government-backed assistance, as well as healthcare and childcare benefits from your employer, if you are employed.
4. Care for You Health
The latest addition to your family will require much of your physical and mental energy. The first few weeks, maybe months, could probably be an ordeal since you have to adjust to a new, more rigorous routine after having a laid-back life for several years.
Therefore, taking care of yourself is of highest priority. You will not be able to take care of your grandchildren if you are not on your best form. Moreover, medication and/or hospitalization would cost you money, unless you have health coverage. You might also have to pay someone to look after your grandkids.
It would be wise to have your regular visit to your doctor. You should also take your prescribed medicines. Regular exercise and a healthy diet should also part of your new routine.
While taking care of your physical self is a requirement, it is also sensible that you should also be emotionally and mentally healthy. There are instances when you need to vent out all these big changes happening to your life and this is just fine. You do not have to do it all alone. You can talk to your close friends about the things happening with you.
There are also support groups all over the country that you can join to share your experiences, be it up or down. Based on a report by the U.S. Census Bureau back 2014, you are not alone. There are about 2.7 million grandparents just like you who are acting as the primary caregivers for their grandchildren.
It is also suggested that you give yourself a break, even a few hours a day, just to get yourself rejuvenated. You can wake up an hour earlier just to enjoy more of your morning coffee, or stay up late a little longer just to have the quiet living room to yourself. You can even ask a neighbor or a relative to take care of your grandkids for a while if you think you need a more time.
Having the proper health coverage is equally important, not only for you but for your grandchildren as well. If you are still working, there is a slim chance that you will be able to add them as beneficiaries. Most states do not allow this kind of setup unless you are the legal guardian. For retirees, health insurance coverage is also limited.
However, Medicaid and the Children’s Health Insurance Program (CHIP) are two of the options being offered in every state. These include eyeglasses, checkups, shots, hospital and medicine coverage for grandchildren up to 19 years of age.
5. Manage Your Stress
Similarly, your stress level will go up the roof once you have grandchildren to take care all of a sudden. There are a few who can cope with the situation with no trouble, but what if you do not belong to this group?
One of the biggest stress givers is the change in the routine that you had been following for the last several years. A trick that you can do is to stick with it as much as possible. If your body clock is set to wake up at 7:00 a.m., then get up from bed at the same time the following morning. Gradually adjust your wake up time, say five or 10 minutes earlier in following days. You can also try to get in bed earlier if you need to wake up earlier than usual. This way, your body will still have its normal duration of sleep that it has been accustomed to.
The fear of failing is another common stress giver, not only for grandparents but for everybody. Many grandparents think that since they are now taking care of their grandchildren, they will be the ones to be blamed in case they fail to meet the standards of society. You really don’t have to blame yourself.
Since you have already aged, there are some things that you can longer do, especially on the physical side. Again, do not make the “undo-ables” a factor in your life, which will only trigger mental and physical stress. If something comes up that you have no control of, you have to let it go.
Studies have shown that grandparents who are the primary caregiver of their grandchildren have a greater risk of experiencing depression and other health risks compared to non-caregiver grandmas and grandpas, NCBI reported.
6. Go Over Your Retirement Plan
When the situation arises, many grandparents tend to forget about themselves and this includes their retirement plan. This should not happen. Financial experts agree that you should not use up all your savings for the needs of your grandchildren.
On a related note, you should also not use your savings for their education. You grandchildren will have many financial options in terms of aids available to them when the right time comes.
7. Review Your Will
In case you have not yet done so, then you should prepare your will. Remember not to bequeath your assets directly to minors; rather, place it in trust until they are old enough to know how to manage it.
If you have already prepared your will, then you should review and append it based on your new circumstances.
Being a parent for the second time around is an overwhelming feat, especially if everything will be dependent on you. Help is always available, be it financial, emotional, or physical. Your friends and neighbors will also be able to provide help in their own little way, so you have to stay positive at all times.