Hard as it may be to believe, the baby-boom generation now has its fair share of grandparents.
Once the shock of becoming a grandparent subsides, boomers often are inspired to set aside money for their pride and joys' future -- especially for college, the cost of which is skyrocketing at a rate well beyond inflation.
But contributing to an education fund is not easy, especially for boomers who are planning for retirement and perhaps helping to care for elderly parents.
As director of communications for Centre College in Danville, Ky., Mike Norris, 55, is quite familiar with the cost and importance of education. That is why he is starting a college fund for his first grandchild, Samuel, born two months ago.
Norris is still figuring out how much to contribute, but at a minimum, he will invest $500 a year, probably in a tax-favored education fund, and expects it to reap $20,000 in 15 years. If he can manage to put away $2,400 annually, Norris expects to be able to give Samuel $94,000.
Norris's 85-year-old mother plans to chip in, too. But creating a fund for Samuel or any future grandchildren will not be painless. That is because Norris is also contributing as much as he can to his own retirement fund and does not want to skimp on that.
So he plans to cut back on discretionary items -- perhaps buying a new car less frequently or taking simpler vacations.
"You realize when you get into your fifties that the next generation is your legacy for the future," Norris said. "My parents put me through college, with some help from my mother's mother, and it just seems like continuing the tradition."
Financial planners suggest boomer grandparents consider funds known as Section 529 plans. These education funds, run by states but managed privately, grow tax-free, have generous contribution limits and remain in the donor's control.
"Let's say you set it up for grandkid A, and grandkid A turns out to be a bum," said Clark Randall, a financial planner in Dallas. "You can switch it to grandkid B."
Also, if a grandmother who sets up a 529 fund has a personal financial crisis, she can use some or all of the money for herself, although it becomes subject to income taxes and a 10 percent penalty.
Another tax-free option is a Coverdell Education Savings Account, but its contribution limit is $2,000 a year per child.
Grandparents also can set up a Roth IRA, a trust or a life insurance policy with an interest-free loan for their grandchildren, as long as they can accept that the youngsters would be free to spend the money as they choose -- not necessarily on school.
Debbie Dachowski, 56, an office manager from Oradell, N.J., buys her three grandchildren $100 savings bonds for their birthdays, Christmas or other big events. She figures the investment will help them meet education expenses or make a down payment on a car to get them to school.
"I'm just keeping them in a safe-deposit box," Dachowski said of the savings bonds. "When they get older, they'll know they're there."
A 2002 report from AARP said the average age that people become grandparents is 48 -- smack in the middle of today's age range for baby boomers, who were born between 1946 and 1964. AARP also found that 52 percent of grandparents spend money on their grandchildren's educational needs.
Younger grandparents need to begin planning for that now, said Joseph F. Hurley, an accountant who heads Savingforcollege.com LLC from Pittsford, N.Y. By the time the little ones get to college, the grandparents are likely to be retired on a fixed income and might find it harder to chip in.
That tip comes with a caveat.
"What grandparents do can affect a student's eligibility for financial aid," Hurley said. "It should be a family issue, with communication with the parents. Make sure everybody's in sync."