Being a grandparent is an exciting time of life and often many are in a position where you want to give a helping hand to the next generation. Many grandparents want to help their grandchildren financially. However, because of their special relationship, Grandparents often think short term when gifting money to their grandchildren. Some grandparents aren’t as informed as they could be about how they can best help. Here are 5 ways Grandparents Can Help Their Grandchildren Financially
Start by understanding your own financial position
Before you give to grandchildren, you should assess your own retirement plans to make sure you have enough for yourself, you don’t want to help your grandchildren financially and then run out of money for yourself later on. It’s better to offer your grandchildren less than you think you can afford than it is to offer an amount that two years or five years or sometime down the road becomes a burden for you. If you have any doubts about what a certain gift will do to your own financial future don’t give that gift
Educate them about money management
Financially educated grandchildren will handle gifted funds in a much healthier way than those who are not. Start at a young age by talking about your own beliefs around money. Share with them some of your own experiences – both good and bad. Help them make smart money choices by teaching them values on how to save money, budget and give to others. Allow them to learn from their own mistakes without fixing the problem for them. On the other hand, if you have serious doubts about their ability to use your gifts wisely don’t give to them until those doubts are erased.
Because you love your grandchildren, you do not want to encourage them to be financial dependent on you. Set limits. Avoid titling your home, bank account or other assets in any child’s or grandchild’s name if they are not financially responsible. This follows the philosophy that we’re all responsible for our own actions. If your grandchildren’s actions show you that you can’t trust them to use money wisely then you should not give those grandchildren money.
529 plan—a great option to support grandkids
A 529 plan can be an excellent way for grandparents to contribute to a grandchild’s college education, while simultaneously paring down their own estate. Contributions to a 529 plan grow tax deferred, and withdrawals used for the beneficiary’s qualified education expenses are completely tax free at the federal level. Contributing when the grandchild is young allows more time for the funds to grow tax-free, Because of this, 529s offer a unique feature that lets you make a lump-sum contribution of up to $70,000 and elect to spread the gift evenly over five subsequent years for tax purposes. Then, you won’t have to file a gift-tax return.
Giving money is one way to help your grandchildren.
If you are in the financial situation where you want to simply give money to your grandchildren to use however they please, simply gifting money is a viable option. However, you should keep the federal lending limit in mind while doing so. Giving away that much money at once may sound like a bad idea, but if you have all of what you need in retirement, you can lessen your own estate taxes by gifting excess funds to your grandchildren.
Give when your grandchildren can use the money wisely
Look beyond issues like the tax advantages of your gifting. Consider this question: “When my grandchildren have access to this money will they be wise enough to use is sensibly?” Consider the values and priorities of the grandchildren’s parents, too. It’s wise to get the parents’ agreement before you announce any gift to your grandchildren.