Becoming a grandparent is a significant event in a person’s life – one that can change their life in many wonderful ways. The feeling that accompanies this huge occasion is often so exciting that it gets most grandparents to admit how they will stop at nothing to see a smile on their grandchildren’s faces.
Just as any grandparent enjoys presenting their little grandkids with the best toys available, many would give anything to ensure that their future is secured as well. Meanwhile, for most of these grandparents, helping their grandkids get ahead in life is a way of leaving a solid legacy for generations to come.
Whether by contributing to their college tuition or offering a downpayment on their first home, there are numerous ways to help your grandchildren attain a stable financial future. That said, it is worth noting that investing in your grandchildren’s trust funds is a great way to start.
In this article, we will be discussing different plans that you can use to reach your goal. However, if you seek additional, detailed guidance on this journey, you can always reach out to Seasons Retirement.
Below are six clever ways to invest in the future of your grandchildren:
This is a popular investment made by parents and grandparents towards the education of their wards. Also referred to as the 529 plan, due to its section in the Internal Revenue Code, it has been one of the most efficient ways to save for college since the late 1990s.
A strong Education Saving Plan will be enough to help students avoid taking loans. So, by investing in a 529 plan for your grandkids, you will be ensuring that they get their adult life off on the right foot. The funds will cater for expenses such as tuition, supplies, books for a university education or accredited vocational education.
The specifics and rules of 529 plans vary by state laws and individual plans, like annual contributions limits. The contribution limits of individual plans are usually high. However, it is important to point out that these contributions are considered gifts, so they fall under the annual gift tax exclusion.
You can have each grandchild on an individual plan, with the awareness that the funds are transferable amongst your grandkids if a particular child does not have use for it.
Moreover, you can decide what happens to the account at any point in time. So, you can always opt to reclaim the money if you need it or when any of your grandchildren don’t need it. However, you would have to pay a 10% penalty and taxes on the money reclaim.
As a grandparent, you can offer to pay for the schooling of your kin. You may opt to make the payment by yourself or go through your grandkids’ parents.
Paying tuition directly is an investment in your grandkids’ future. A major perk of this method is that you won’t be paying a gift tax as required in some education savings plans.
Setting up a trust fund is a popular way of moving wealth down a family line. Despite the bad press that follows ‘trust fund kids,’ trusts are harmless schemes for passing money to a beneficiary.
Also, this tool is not just for the wealthy, as a middle-class income earner can make use of it too. With the way trust works, the funds are controlled by you, acting as the custodian, until the child reaches an age already specified by you.
Now, it is important to be aware of the negative impact that a trust fund may potentially have on your grandchild’s life. It may affect their eligibility for financial aid in college.
Furthermore, receiving a huge sum of money at an early age can affect a child, as they may be extravagant and not put the money to good use. So, it is advisable to let them get the contribution when you feel they are mature and responsible enough to handle it.
It would help if you considered naming your grandchildren as beneficiaries or contingent beneficiaries on your accounts. It is another excellent way to secure their future on the financial front.
Whether the account is a life insurance account, retirement account, or investment account, it doesn’t matter, as the essential thing is that the money will get to your grandkids without passing through probate.
You should also be mindful of how the money can affect each beneficiary. When taking this move, consider the tax implications as well as the impact on future financial rewards.
5. Savings and Investment
It is never too early to begin saving for and investing in your grandchildren’s future. You may want to consider a high-yield savings account where your cash gifts can increase to a substantial amount for years to come.
Also, helping your grandkids invest in a brokerage account and teaching them about it will give them financial literacy and show them the numerous opportunities that long-term investment offers.
Furthermore, you can save money for your grandchildren in Uniform Transfers to Minors Act / Uniform Gifts to Minors Act (UTMA/UGMA) accounts. Like an education savings plan, there is a limit to which you can contribute without paying tax.
Either you or anyone you appoint would serve as the custodian on the account until the child reaches the ages of 18 or 21, depending on the state in question. At this point, the child gains control of the account and the funds therein.
As insignificant as it may seem on the surface, sharing your financial values can go a long way in helping your grandchildren properly manage the fortune you may have given to them.
Here, instead of giving gifts, your financial aid may be in the form of advice and motivation that will serve as an incentive for your grandkids to achieve great things. Furthermore, you can help your grandkids set financial targets and show them how to hit those targets.
There is no set time when you should start making preparations to contribute to your grandchildren’s future.
So, if you want to ensure a stable financial future for your grandchildren, you should start planning now.
Having said that, before embarking on any of these gifting avenues for your grandkids, ensure that you are buoyant enough to follow through with them.