As usual, your column is right on the money with timely advice on how grandparents can give gifts to their grandchildren without spoiling them. We have two girls, ages 4 and 2, and they have three sets of grandparents. My wife and I consistently request that the grandparents contribute to college-savings plans we've set up, and they generally oblige. It's gratifying to receive those account statements.
This holiday season, we're also making a point of asking the grandparents to put the brakes on branded toys and focus on good, solidly rated toys that are fun and educational. As you noted, the key is to keep an open dialogue with grandparents about money matters, which is very important to our family.
It's always gratifying to hear about a real-world success story. Not every family is so fortunate. "I'm trying to teach my 13-year-old daughter that she can only spend what she has, but my in-laws always seem to sneak money to her," one unhappy parent wrote to me.
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But I also heard from a grandmother who makes it a policy to limit gifts to $25. "The kids happily make their purchases or save the money, and in return I have their love, attention and time together."
During this giving season, I'd also like to put in a plug for grandparents contributing to state-sponsored 529 college-savings plans. All three generations come out winners: Mom, Dad and the grandchildren get help with tuition, and grandparents get attractive tax benefits.
When you open a 529 account for a grandchild, more than half the states and the District of Columbia will give you a state tax break (see our choices for the best plans in all 50 states).
Plus, you can move money out of your estate -- contributing up to $60,000 (or $120,000 from both of you) at one time for each grandchild and averaging the gift over five years -- while avoiding the gift tax and keeping control of the money if you need it.
You can switch beneficiaries or get your money back by paying income tax and a 10% penalty on the earnings. And the federal financial-aid application doesn't ask about grandparent-owned accounts.
Investing for youngsters
I'd like to open an investment account for my 10-year-old grandson. What's the least expensive way to do this if I'm only going to invest a few hundred dollars?
Use a discount broker such as ShareBuilder, which charges a $4 commission. Or consider a mutual fund with a low minimum investment, such as Hodges fund ($250 minimum) or Homestead Value ($500).
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529 Plans: A Powerful Way to Tackle Rising Education CostsContributions to 529 plans grow tax-free and are not taxed when they are used to pay for qualified educational expenses for the beneficiary.
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Tax Tips for Transferring Excess 529 Plan Funds to Roth IRAs: The Tax LetterThe Tax Letter 529 plans can help blunt the cost of paying for college. But if you want to use leftover funds there are some tax tips to bear in mind.
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529s: No Longer the Ho-Hum Investing Device for CollegeChanges to the plans allow for the savings to be rolled into a Roth IRA, as long as certain rules are met, if a child decides not to pursue their education.
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529 Plans: Give the Gift of Education (and Compounding)As the cost of college tuition skyrockets, parents and grandparents can take advantage of tax-efficient 529 plans and higher limits on gift and estate taxes.
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Have Leftover 529 Funds? Expert Strategies for Unused BalancesExcess 529 funds represent both a challenge and an opportunity, and knowing your options is essential.
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Using a 529 Plan? Here’s What to Keep in MindAs the school year progresses, ensure you’re using the money for qualified expenses and keeping track of documentation. Taxes and options for unused funds are also considerations.
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Three Reasons You Need to Use a 529 Plan (and Two Reasons You Don't)Tax benefits and a Roth IRA feature make 529 college savings plans attractive, but they're not a one-size-fits-all option.
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529 Plans Get a Boost With Tax-Free Rollovers to Roth IRAsThanks to the SECURE 2.0 Act, you're now able to roll over funds from your 529 into a Roth IRA, as long as certain conditions are met.
