Shopping for grandkids can be difficult. Clothes and gift cards are usually boring and toys are only exciting for a day or two, but there’s another solution: financial gifts. While a financial gift might not be fully appreciated by kids or teens when they’re young, they will get far more from it than the momentary joy of receiving the newest, trendiest toy. To get your grandkids started early on the road to financial independence, we suggest these gifts:
With student debt being one of the biggest anchors around young people’s finances, securing an account that helps pay for college can positively impact your grandchild’s entire financial future. A 529 Plan is simple to start and pays for college in one of two ways: buying prepaid tuition credits that can be traded in later when your grandchild starts school or by allowing you to invest the money in a stock portfolio.
Each state offers their own 529, typically allowing for only one of the two types. While you can choose a plan from another state to get the option you want, there are greater tax advantages when choosing a plan from your own state. A 529 is also good for avoiding a gift tax, allowing up to $28,000 in contributions per couple without this extra fee and $14,000 for an individual.
Alternately, you can choose a Coverdell Education Savings Account. An ESA, like a 529, offers tax-free growth. Their primary advantage over a 529 is that they allowed for more options in regard to how the money is invested. However, an ESA only allows for a maximum contribution of $2,000 per year up until the child is 18. After this, the money must be used for educational expenses by the age of 30.
Both college savings plans are intended to be used for educational expenses only. If the money is withdrawn and used on other purposes, a 10% penalty will be charged.
If you want the added advantage of reducing your estate taxes, consider setting up a trust for your grandchild. Not only can you put money in a trust, property and other possessions can also be added. Moreover, a trust allows you to dictate how and when the money will be distributed.
This can be advantageous if your grandkids are over 18 but possibly not old enough to be responsible for a large sum of money. In this case, you can stipulate that the money not be dispersed until a certain age or set up for payments over several years.
When to Set Up a Trust: Since a trust can often cost anywhere from $1,500 to $5000 to set up, a trust is best when you have $25,000 or more to gift. Anything less than this is better gifted in the form of stocks, bonds or other gift-type mentioned here.
If you have older grandkids who have already started working, help them begin a Roth Individual Retirement Account by matching their contribution. This is one of the best ways to help kids and young adults plan for their future and their retirement.
A Roth IRA’s biggest advantage is that both withdrawals and earned interest are generally tax free. This means your grandkid will only pay taxes on the money based on their current income and not their future income when they take it out. While the interest can’t be taken out before retirement without a penalty, the contributed amount can be taken out at any time.
Note: A custodial account can be started for someone under 18, but a legal guardian is required for this. For more on how to set up a Roth IRA, visit here.
While a gift of stocks can be risky because they are subject to market changes, they also present the opportunity to grow well beyond what bonds or other, safer investments might. Moreover, this will give you a chance to teach your grandchild about stocks and the market while giving them the excitement of seeing the daily changes in the price of their stock, and fostering an interest in the economy.
While not a financial gift, there are toys you can give that could lead to your grandchild making their own financial success with a career in technology. Consider these amazing toys that teach kids how to code and increase their technology literacy for this holiday season.
While gifts are nice, sometimes the best thing you can give your grandkids is your time. A life plan community like The Cedars of Chapel Hill allows for a fun and comfortable place for your grandkids to visit you. Unlike other retirement style communities, The Cedars offers a wide range of amenities like gourmet dining, a fitness center and proximity to many exciting attractions. To learn more about life at The Cedars, visit our Lifestyle section.
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