8 ways to give money to grandkids without jeopardizing retirement savings

8 ways to give money to grandkids without jeopardizing retirement savings

Supporting Your Grandkids: Creative Ways to Provide Financial Assistance

Grandparents supporting grandkids

As a grandparent, providing financial support to your grandchildren can be one of the most rewarding experiences. However, it can also raise concerns about depleting your own retirement savings. After all, you want to ensure that you have a comfortable and stable future while still being able to support the next generation.

Fortunately, there are numerous creative ways to provide for your grandchildren without dipping into your hard-earned savings. Legacy Financial Advisors’ Kathryn Amorello has highlighted some of the most promising options for supporting your grandkids. Let’s explore these alternatives together:

1. Contribute to a 529 Plan

If you want to specifically support your grandchild’s education, there’s no better way to do so than by investing in a 529 plan. These state-sponsored investment accounts allow your money to grow and be withdrawn tax-free for college expenses such as tuition, board, books, and supplies.

Contributing to a 529 plan offers flexibility, as you can choose between conservative, moderate, or aggressive fund choices based on the age of the child. The balance of investments transitions appropriately as the child nears college age, ensuring the funds grow predictably. Additionally, anyone can contribute to the account, and unused funds can be reassigned to another beneficiary.

2. Write them into your will

To ensure that you’ve set aside enough for your grandchildren without risking unforeseen expenses, consider writing them into your will. By doing so, you are prioritizing your own retirement savings and guaranteeing that your grandchildren are financially supported in the event of your passing. Don’t forget, your oxygen mask comes first!

3. Make them your life insurance beneficiary

Similar to including them in your will, designating a grandchild as the beneficiary of your life insurance policy ensures that they receive the payout in case of your death during the covered term. This allows you to provide for your grandchildren financially, safeguarding their future. Remember, if you don’t specify a beneficiary, the payout may be subject to legal disputes.

4. Arrange to cover your estate taxes

For high earners who may face estate taxes, taking out an insurance policy specifically designed to pay off these taxes will ensure that your grandchildren inherit the full amount. This strategy prevents your child or grandchild from using their inheritance to pay off estate taxes, enabling them to use the funds as intended.

5. Gift money

To counter potential estate taxes, consider gifting money to your grandchildren during your lifetime. Be mindful of federal limits to avoid the gift tax, but know that monetary gifts exceeding $17,000 can remain tax-free if they go towards medical or educational expenses paid directly to the institution. This strategy allows you to actively reduce your net worth, resulting in lower estate taxes.

6. Do your research

Remaining informed about changes to inheritance laws is crucial in helping your family avoid a last-minute scramble during a difficult time. One example is the recent change to the stretch IRA provision, which now requires inherited IRAs to be emptied within 10 years of the original account holder’s death. Staying up-to-date with these changes ensures that your family’s income and estate planning remains optimized.

7. Consider a trust

Trust funds are not exclusive to the ultrarich; they can be effective for all income levels. By establishing a trust, you gain control over how and when the funds are distributed while avoiding or deferring taxes. Trusts can be filled with various assets, including real estate, business interests, and life insurance policies. They allow for a smoother transfer of assets to heirs, circumventing probate complications. This is particularly useful if you prefer a gradual payout to a lump-sum inheritance, especially for grandchildren who struggle with financial management.

8. Introduce your grandchild to your financial adviser

Empower your grandchildren by introducing them to your financial adviser at an early age. Teaching them solid money habits and having them work with a professional in a family-based practice can set them up for financial success. Not only will they benefit from prudent investment strategies, but they will also be prepared to inherit a significant sum in the future.

In conclusion, providing financial support to your grandchildren doesn’t have to deplete your retirement savings. By exploring these creative options – from contributing to a 529 plan to establishing a trust fund – you can ensure a bright future for your grandchildren while maintaining your financial stability. Remember, the ultimate goal is to make supporting your grandkids feel like a gift, because it truly is.