Financial Focus: Help grandkids prepare for the future
If you’re a grandparent, you don’t need Grandparents Day, observed on Sept. 12, to remind you of the joys of having grandchildren. Yet, you might want to use this day as an opportunity to think about ways to help provide for your grandchildren’s future.
The type of gift or support you provide will be different at various stages of your grandchildren’s lives. Here are a few suggestions:
When they’re born …
Open a 529 plan
It’s never too early to start saving for college or other types of advanced education. To help your grandchildren meet these costs, you could invest in a 529 education savings plan, which offers potential tax advantages if the money is used for qualified education expenses.
If the grandchild for whom you’ve established the account ends up not using it, you can change the beneficiary to a qualified family member of the original beneficiary. (Be aware, though, that a 529 plan could affect your grandchild’s financial aid prospects.) If your grandchild doesn’t go to a college or university, a 529 plan can also pay for expenses related to apprenticeship programs offered through trade and vocational schools and registered with the U.S. Department of Labor.
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When they’re children …
Open a savings account
It’s important for your grandchildren to develop good financial habits – and one way you can help is to open a savings account for them and encourage them to contribute to it. You might even offer an incentive, such as matching their contributions, either in whole or in part. Consider shopping around for a high-yield savings account that’s free to open and charges no monthly maintenance fees.
Establish a custodial account
You may want to introduce your grandchildren to the world of investing by starting a custodial account (known as UGMA or UTMA) in their name. You can put most types of investments, such as stocks and mutual funds, inside this account and track their progress along with your grandchildren.
Children often enjoy learning about investing — and they may like owning shares of companies that make familiar products and services. The earnings generated by these investments can have tax implications, so you’ll want to consult with your tax adviser before opening the custodial account. And you can’t hold onto this account forever — once your grandchildren reach the age of majority, they gain control of the account, so they can do what they please with the investments.
When they’re young adults …
Help with the down payment on a home
Once your grandchildren are out in the world, they may well want to become homeowners. And, as you know, it can be challenging to come up with a down payment. So, if you can afford it, you may want to help in this area. You’ll be doing your grandchildren a big favor, because home ownership is a key element in building wealth.
Provide financial guidance
As your grandchildren join the working world, they could benefit from advice and guidance on various issues, such as setting short- and long-term goals, managing their 401(k) plans and choosing an appropriate investment mix. So, consider making an appointment for them with a financial professional.
By helping your grandchildren at different points on their road through life, you can make their journey more pleasant — and, in the process, you’ll gain a lot of satisfaction.
This article was written for use by Edward Jones financial advisers. Edward Jones and its associates and financial advisers do not provide tax or legal advice. Chuck Smallwood, Bret Hooper, Tina DeWitt, Kevin Brubeck, Charlie Wick and Jeremy Lepore are financial advisers with Edward Jones Investments and can be reached in Edwards at 970-926-1728, in Eagle at 970-328-0361, 970-328-0639 or 970-328-4959 and in Avon at 970-688-5420.