Studying the Many Options for Starting College Funds for the Grandchildren

Q. I want to give each of my grandsons $10,000 this year. They are ages 3 and 10. What are my choices?

--B.L.

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A. We’re going to assume that you are interested in starting college funds for your grandsons, as it seems that’s often the goal of most grandparents.

That said, what are your choices?

The U.S. Savings Bonds’ College Saver plan can be appealing if you’re more interested in tax savings (upon cash-out) than in overall growth. To take full or even partial advantage of the tax break, however, your grandsons’ families must meet income guidelines that favor lower- and middle-income families.

Remember, these bonds must be purchased by and registered in the names of the parents of the children for whose education they are intended. So if you want to pursue this option, you will have to give the money to the parents with the express understanding that they are to purchase the bonds.

You should also know that the full tax break on bond proceeds upon sale are available to families with adjusted gross incomes of up to about $74,200. The tax break is gradually phased out for incomes above that level, ending completely at an adjusted gross of about $104,200.

Series EE Savings Bonds purchased after May 1 are paying 5.68%. For more information, write for the free brochure “U.S. Savings Bond Investor Information” from the Federal Reserve Bank of Kansas City, P.O. Box 419440, Kansas City, MO 64141.

If fund growth is more important to you than tax savings, you may want to consider an alternative recommended by several financial advisors: the American Century-20th Century Giftrust, a highly rated fund used by many college savers.

This fund, formerly known as the 20th Century Giftrust, has a three-year average annual return of 11.56%, a five-year average annual return of 15.92% and a 10-year average annual return of 15.92%.

One reason for its popularity is that, as a trust, the fund--and not its individual owner--is responsible for paying taxes on its gains each year.

Individual investors pay capital gains tax on the increased value of their shares upon the sale of their holdings. At this point, the gift trust share recipients theoretically should be at least 14 years old so they are subject to taxation on their own, not at their parents’ rate.

The fund must be purchased as a gift trust and must be held for either 10 years or until the child reaches age 18. The fund does not charge an initial commission, but it does levy an annual management fee of about 1%. For more information, call (800) 345-2021.

Margi Mullen, a Los Angeles financial planner, also recommends the Vanguard U.S. Growth Fund for college saving. The fund has a three-year average annual return of 23% and a five-year average annual return of 16.9%. Mullen says the fund is operated to minimize annual taxable distributions, making it an ideal investment for youngsters whose parents are in higher tax brackets. For more information on this no-load fund, call (800) 662-7447.

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Q. Is there a credit watchdog group to which I can turn in my desperate struggle with my bank over fraudulent charges on the credit card it issued to me? They are holding me responsible for $6,000 worth of debt I didn’t incur. I am age 72 and fear that this mess will ruin my already ill health.

--A.D.

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A. Credit and charge card billing errors are generally governed by the federal Fair Credit Billing Act. If you find an error or fraudulent charge on your billing statement, you should immediately notify the card issuer in writing. Your letter should be written in as professional a manner as possible, detailing the specifics of the charges you are disputing. Be sure to keep a copy. The law requires the card issuer to acknowledge receipt of the letter within 30 days unless the bill is corrected earlier.

Furthermore, the card issuer has two billing cycles--but no more than 90 days--in which to correct the error or explain why it believes the charges are valid. In California, if the card issuer does not comply with the 90-day time limit, you don’t have to pay any portion of the disputed balance. Interest charges can accrue on the disputed amount during this period if it is later determined that you were in error; the issuer cannot charge interest on the amount if it is determined that you were correct.

If you cannot resolve the matter with the card issuer, you are wise to seek competent legal advice.

For more information about consumer credit matters, see Nolo Press’ book “Money Troubles: Legal Strategies to Cope With Your Debts” by Robin Leonard. The book is generally available in libraries and bookstores.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail carla.lazzareschi@latimes.com