giving is, without a doubt, love. Every grandparent I know yearns for their grandchildren to have the resources and opportunity to live a wonderful life. That is a universal dream. But in the years since that survey was taken, the financial gifts grandparents can provide have taken on a new importance. As parents struggle to retool their financial plans, assistance from grandparents can be a huge help. In the MetLife survey, more than 80% of gifts were made in cash. I don’t think that’s smart. The money you give today funds the dreams of your grandchildren. Do you hear that? Grandparents: You are the dream makers for your grandchildren! In the lesson that follows I will share strategies that will help you help your grandchildren make the most of your giving.
The benefits to your grandchildren aside, it also happens to be a smart way to shift assets out of your estate. In 2011 any individual can gift up to $13,000 to any other individual without running afoul of gift tax laws.
Here are a few different ways to consider how to gift money for dreams:
Follow the parents’ lead . Ask your kids if they have instituted any savings programs within the family. As I explained earlier for parents raising kids, I recommend encouraging children from an early age to set aside some money for savings and charitable giving. Grandparents can participate in the plan that is already in place and you can institute your own matching policy.
529 college savings plans . Ask your kids if they have set up a 529 college savings plan for their children. You can make contributions directly into that plan.
Set up a Roth IRA for a teenage grandchild who has a part-time job . As long as your grandchild has earned income you can fund a Roth IRA for them. So let’s say your grandson made $2,000 last year in a summer job. You could give him $2,000 to open a Roth IRA; he doesn’t have to invest his own money. As long as he made $2,000 you can bankroll the IRA contribution. In fact, if your grandchild earned at least $5,000, you could give him that much in 2011 for a Roth IRA; $5,000 is the current maximum annual contribution limit to Roth IRAs for anyone under the age of 50.
Here’s where the legacy part comes into vivid display: Let’s say you contribute $2,000 a year to your grandson’s Roth IRA each year from the age of 15 to 25. So you have contributed a total of $20,000 over 10 years. Now let’s assume that money grows at an annualized 6% all the way until your grandson turns 70. Your $20,000 in Roth IRA gifts could be worth nearly $400,000. And as I explain in the Retirement classes, contributions to Roth IRAs can be withdrawn at any time without owing a penny in tax. Wow—I wish someone started an IRA for me when I worked my first job as a counter girl making sandwiches in my dad’s delicatessen when I was a teenager. That’s quite a legacy to put in place.
Help them save for a car and/or home . Notice I said “help.” I think it is very important that your grandchildren—and your children, for that matter—make the commitment to save on their own for big-ticket purchases. If they lack the resolve and the resources to save for a long-term goal, then they are probably not yet responsible enough to make that purchase. I think it is great if you contribute to their goals, but I do not want you to bankroll anything in full. Sit down with your grandchild and ask him what he hopes to save up for in the future and then offer to become his co-saver. Think of this like a 401(k) match. Maybe for every dollar he puts in the down payment fund you can match 25 cents, or a dollar, or $5.
Give experiences, not things . Recent studies have shown that happiness comes more from pleasurable experiences than from buying things. I think that’s a great opportunity for grandparents. Focus on gifts that you can experience together, whether it’s tickets to a ball game, a weekend jaunt to the city to hit museums and the theater, or a weekend getaway at
The benefits to your grandchildren aside, it also happens to be a smart way to shift assets out of your estate. In 2011 any individual can gift up to $13,000 to any other individual without running afoul of gift tax laws.
Here are a few different ways to consider how to gift money for dreams:
Follow the parents’ lead . Ask your kids if they have instituted any savings programs within the family. As I explained earlier for parents raising kids, I recommend encouraging children from an early age to set aside some money for savings and charitable giving. Grandparents can participate in the plan that is already in place and you can institute your own matching policy.
529 college savings plans . Ask your kids if they have set up a 529 college savings plan for their children. You can make contributions directly into that plan.
Set up a Roth IRA for a teenage grandchild who has a part-time job . As long as your grandchild has earned income you can fund a Roth IRA for them. So let’s say your grandson made $2,000 last year in a summer job. You could give him $2,000 to open a Roth IRA; he doesn’t have to invest his own money. As long as he made $2,000 you can bankroll the IRA contribution. In fact, if your grandchild earned at least $5,000, you could give him that much in 2011 for a Roth IRA; $5,000 is the current maximum annual contribution limit to Roth IRAs for anyone under the age of 50.
Here’s where the legacy part comes into vivid display: Let’s say you contribute $2,000 a year to your grandson’s Roth IRA each year from the age of 15 to 25. So you have contributed a total of $20,000 over 10 years. Now let’s assume that money grows at an annualized 6% all the way until your grandson turns 70. Your $20,000 in Roth IRA gifts could be worth nearly $400,000. And as I explain in the Retirement classes, contributions to Roth IRAs can be withdrawn at any time without owing a penny in tax. Wow—I wish someone started an IRA for me when I worked my first job as a counter girl making sandwiches in my dad’s delicatessen when I was a teenager. That’s quite a legacy to put in place.
Help them save for a car and/or home . Notice I said “help.” I think it is very important that your grandchildren—and your children, for that matter—make the commitment to save on their own for big-ticket purchases. If they lack the resolve and the resources to save for a long-term goal, then they are probably not yet responsible enough to make that purchase. I think it is great if you contribute to their goals, but I do not want you to bankroll anything in full. Sit down with your grandchild and ask him what he hopes to save up for in the future and then offer to become his co-saver. Think of this like a 401(k) match. Maybe for every dollar he puts in the down payment fund you can match 25 cents, or a dollar, or $5.
Give experiences, not things . Recent studies have shown that happiness comes more from pleasurable experiences than from buying things. I think that’s a great opportunity for grandparents. Focus on gifts that you can experience together, whether it’s tickets to a ball game, a weekend jaunt to the city to hit museums and the theater, or a weekend getaway at
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