Consider financial gifts for your grandchildren (opinion)
Special to the NNBV
National Grandparents Day is observed on Sept. 9. If you’re a grandparent, you may get some gifts or cards — or maybe even a phone call! But you might feel that it’s better to give than to receive, especially when it comes to your grandchildren. And you can make a real difference in their lives by making a financial gift for their future.
For starters, think about your grandchildren’s education. If college or some type of vocational school is in their future, you may want to help them meet some of the costs, which can be considerable.
One common education-savings vehicle is a 529 savings plan. With this plan, earnings on withdrawals are tax free, provided they are used for qualified education expenses. (Keep in mind that 529 savings plan distributions not used for qualified expenses may be subject to ordinary income tax and a 10 percent IRS penalty on the earnings.)
You also may be eligible for a state income tax incentive for contributing to a 529 savings plan. Check with your tax advisor about these incentives, as well as all tax-related issues pertaining to 529 savings plans.
A 529 savings plan’s contribution limits are quite generous. And, as the owner of a 529 plan, you have flexibility in choosing where the money goes — if your grandchild decides against college or another type of advanced education, you can transfer the plan to another beneficiary.
And due to recent tax law changes, the scope of 529 plans has been expanded to include qualified withdrawals of up to $10,000 for tuition expenses per year per beneficiary at public, private or religious elementary or secondary schools.
Be aware, though, that a 529 savings plan could affect any financial assistance your grandchild might receive. Although a 529 plan owned by a grandparent won’t be reported as an asset on the Free Application For Federal Student Aid (FAFSA), withdrawals from the plan are treated as untaxed income to the beneficiary (i.e., your grandchild) — and that has a big impact on financial aid. So, you may want to contact a financial aid professional about the potential effects of any gifts you’re considering.
A 529 savings plan isn’t the only financial gift you could give to your grandchildren. You also might consider giving them shares of stock, possibly held in a custodial account, usually known as an UTMA or UGMA account.
However, you only control a custodial account until your grandchildren reach the age of majority as defined by state law, at which time they take it over. They then can use the money for whatever they want – and their plans may not have anything to do with books or classes.
Still, your grandchildren might be particularly interested in owning the stocks contained in the custodial account – many young people enjoy owning shares of companies that make familiar products. And your gift may even get your grandchildren interested in long-term investing.
No matter what type of financial gifts you give to your grandchildren, make sure your keep enough money to pay for your own needs. It’s important to balance your personal savings needs with your desire to be generous.
Giving financial gifts can be rewarding — to you and your grandchildren. Consider exploring some possibilities soon.
Douglas J. Drost, CFP, is a financial adviser for Edward Jones, working out of the company’s Fallon, Nevada, office at 298 S. Taylor St. Visit http://www.edwardjones.com/douglas-drost to learn more.
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