Created: May 27, 2021
Modified: January 27, 2023

Episode 47: What’s the Best Way for A Grandparent to Save for A Grandchild?

Thank you for joining us for episode 47 of our Money Wisdom Question Series, where we answer common financial and retirement investment questions. Today’s question is, “What is the best way for a grandparent to save for a grandchild?”

529 Plans

There are a couple of different ways that a grandparent can save for a grandchild. Flexibility is the key sometimes, but if flexibility isn’t needed and the saving is strictly for college education, a 529 plan, in my opinion, is the best way to go. Almost every mutual fund offers 529 plans that you can put money into. It grows tax-deferred as long as the money is used for qualified education expenses, primarily anything connected to college/university. All that growth is tax-free. When a child takes the money out, it’s tax-free. It’s not in the grandparents’ account, but the grandparent does maintain some control over it. If that particular child they had in mind does not go to school, they can change the beneficiary to somebody else that maybe is going to college. That’s a great way to save for a grandchild.

Custodial Accounts

What if the grandparent just wants to put money in a grandchild’s name to give them a fresh start in life? Well, you could use a custodial account. You could put money into a custodial account and as the money grows, if you buy and sell stocks or if you earn interest, you’re going to pay some taxes on it, but it is for the benefit of the grandchild. The grandparent can have the statements come to their house and can keep an eye on the account. They can even control the investments in the account.

Direct Gifts to a Grandchild

Another way for a grandparent to save for a grandchild is direct gifts. In 2021, an individual can gift $15,000 and $30,000 for married couples, which is tax-free.

There are a Number of Ways to Save for a Grandchild

There are a number of different ways to save for a grandchild. Typically, what you want to do is make sure you are all set yourself in retirement. You don’t want to impoverish yourself to give gifts to a grandchild. The key is when do you want the money to be used and do you want the money restricted in any way?

Thanks for joining me and I hope you found this information helpful!

P.P.S. Feel free to submit questions here for a chance to have them answered!

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