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Planning Financially for Your First Grandchild

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Updated August 12, 2018

Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.

Having your first grandchild is an exciting event and a significant life milestone. Adding one more person to your extended family brings with it several financial options and opportunities. You can play a major part in your grandchild’s future, and get them off on the right financial foot from year one. Here are some actions that you can take, financially, when you have your first grandchild.

Help Start a College Fund

As of today, there is no life achievement more correlated with financial security in life than gaining a college degree. It is also swiftly becoming one of the most expensive life investments that one will make. To help your grandchildren handle the future costs of college, you can assist by helping to set-up a 529 plan in their name. A 529 plan is an account which you can use to save and invest money for eligible education expenses, which, post-2017 Tax Reform, can be applied to not only college but elementary and high school education as well. 529 plans are set-up by the states, who also provide the investment options. The major advantages of a 529 plan are that all invested earnings can grow tax-free, the distributions are tax-free, and you can contribute or gift to them tax-free up to $75,000 individually or $150,000 jointly in a single year. If you decide that you don’t want to own a 529 plan on your grandchild’s behalf, then you can also gift them up to $15,000 per year without having to pay taxes on the gift, then the parents can use that money to start your grandchild’s college fund, however they wish. To make your contributions extra impactful, periodically contribute to this fund so that they can grow and compound this educational nest egg over the 18 years leading up to their college years.

Help Start a Retirement Fund

It’s never too early to start preparing for retirement. Retirement planning benefits most from time and consistency. Starting a retirement fund when your grandchild is born, gives them an account that they can use to start saving as soon as they start earning some income. In a Roth IRA, their funds can grow tax-free until they’re ready to start pulling on them in retirement. Even if they are just babysitting and mowing lawns early in life, they can save as much money as they earn, up to the annual contribution limits. In a custodial account you can make contributions in their name, until they are ready to take sole ownership of it after 18. Having this account in place early helps to remove an obstacle to saving later on in life, and as a custodian you can help them learn the value of saving and compounding money over time, by having an adult make matching contributions for any jobs they get prior to becoming an adult. Consider these calculations: If they start with a $100 investment at 10 years old, and add just $100 per year, at an average rate of return of 8%, then after 8 years they will have $1300. Keep this up, and by retirement age of 67, this initial investment grows to over $100,000! It’s nothing to retire on, but it’s not a bad start either.

Add them as Beneficiaries to Trusts or Policies

Growing your family means that you will have more options for how you want to divide up the assets in your trust or estate.  Similar to helping to invest in your grandchild’s college fund, adding them as a beneficiary to your estate can ensure that in the future they can benefit from whatever assets you have to distribute when you are no longer alive.  In the case of a trust, you can even choose to have these distributions done according to your wishes while you are alive. There may be distinct tax advantages that can be leveraged through the estate, so it might make sense to talk with a trust advisor regarding what might best fit your wishes.

If you’re a relatively young grandparent, or if you have custody or responsibility for the care of your grandchildren, you may want to list your grandchild as a beneficiary on any existing life insurance policies.

Provide Support to their Parents

Growing your family means that you will have more options for how you want to divide up the assets in your trust or estate. Similar to helping to invest in your grandchild’s college fund, adding them as a beneficiary to your estate can ensure that in the future they can benefit from whatever assets you have to distribute when you are no longer alive. In the case of a trust, you can even choose to have these distributions done according to your wishes while you are alive. There may be distinct tax advantages that can be leveraged through the estate, so it might make sense to talk with a trusted advisor regarding what might best fit your wishes. If you’re a relatively young grandparent, or if you have custody or responsibility for the care of your grandchildren, you may want to list your grandchild as a beneficiary on any existing life insurance policies.

Trust Point Can Help You Support Your Grandchildren

To review, here are some of the most significant things you can do for your grandchildren:

  • College Savings: Help to start a 529 account and begin investing in it
  • Retirement Savings: Open an IRA and begin contributing to it
  • Estate Planning: Add your grandchildren as beneficiaries to your trusts and/or life insurance policies
  • Family Support: Provide childcare, share daily costs, or prepare a weekly meal

However you want to support your grandchildren, a Trust Point advisor can help you figure out how to set-up the accounts and plans to give them a solid financial start. Contact us today to see how we can help!

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Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.