6 Ways to Help Set Up Your Grandchildren for Financial Success

Many grandparents want to help their grandchildren financially but are not sure where to begin or are unaware of the various options available to them. Whether your grandchildren are toddlers or college students, there are several ways to help start them on the right path toward financial success.

Start Saving for Your Grandchild

Custodial Account

Setting up a custodial account for those with grandchildren under the age of 13 is a great option to help set them up for financial success. Unlike most trust funds, custodial accounts do not require an opening fee, monthly fee, or earn interest unless the annual account balance exceeds $500. 

The account custodian (family member or guardian) controls the account via digital banking to make deposits or withdrawals. The account custodian is the only person allowed to withdraw from the account until the account is closed when the child turns 21-years-old. Although there is no contribution limit for custodial accounts, exceeding $15,000 annually in the account will trigger needing to pay a gift tax paid by the account custodian.

Trust Fund

Setting up a trust fund for your grandchildren is another way to help them financially and offers more control than a custodial account. Trust funds help manage the money by making gradual payments to the beneficiary over time, rather than all at once. The downfall to trust funds is that they typically require more planning done with the help of an attorney and cost more to keep open due to interest. However, contributions put into trust funds lower the contributor’s income tax liability and estate tax. 

529 Plan

Opening a 529 plan for your grandchild or grandchildren allows you to save money tax-free for their current and future schooling costs, up to $15,000 annually. This plan is a growing investment starting with contributions as low as $25. In addition, a new rule allows 529 Plan funds to go toward apprenticeship program expenses and paying off student loans debts up to $10,000. 

There are two types of 529 plans, including college savings plans and prepaid tuition plans. If you make a college savings plan through Backer, you can share an invite code with friends and family, where they can contribute to your grandchild’s college savings plan for special events such as holidays, birthdays, or graduation. If you start a prepaid tuition plan for your grandchildren, you can freeze the current tuition rate for your grandchild as long as they attend college within the next 18 years at eligible institutions.

Help with Expenses Outside of Tuition and Rent

Grandparents sometimes do not have the means to save for their grandchildren but still want to help set them up for financial success. If you cannot save money for their education but still want to contribute financially, you can help pay for things other than tuition and rent. A few things that might be a stretch for the parents that you can buy might be school supplies, textbooks, or laptops. 

As a personal example, my grandparents bought each of their grandchildren a laptop as a high school graduation present because they recognized that it is a necessary tool to have throughout college. If they had not bought me a laptop computer for college, that would have been a considerable cost for me to pay for myself, so it was something that I was incredibly grateful to receive. 

Another way to help your grandchildren financially and see them more often would be to pay for travel expenses to and from home over their summer and holiday breaks. By sparing your grandchildren the expenses of school supplies, textbooks, a laptop, and travel, you will help them build their savings account.

Other Ways to Help Their Financial Success

 Get Your Finances in Order

If money is tight and you cannot offer financial support, there are other ways to help set your grandchildren up for financial success. Although it can be difficult, it is vital to plan who your assets will go to after you pass. Writing your grandchildren into your will, making them your life insurance beneficiary, and arranging to cover the costs of your estate taxes are all ways to financially contribute to your grandchildren’s future without sacrificing your retirement funds.

Offer Connections and Advice

One of the best ways to set your grandchildren up for financial success doesn’t involve giving them money. Instead, you can help your grandchildren have a positive financial future by offering connections and advice to them. 

As a grandparent, you have most likely learned a few tricks regarding finances throughout your life. Providing your grandchildren with financial advice is arguably more valuable than giving them money because they will know how to spend, save, and invest their money properly. Although sharing stories about times you made financial mistakes can be embarrassing, being honest about those moments will hopefully help your grandchildren avoid making the same mistakes. 

Another way to help your grandchildren learn and plan for their future is to introduce them to your financial advisor to have someone to help them, especially after you are gone. You can also provide networking connections to your grandchildren if you know people working within their industry to help them find work that offers financial stability. 

Besides extending financial help and advice, being a positive role model to your grandchildren and showing them what it means to be financially successful will help them take after you and set them up for financial success in the future.