Con­sider Fi­nan­cial Gifts for Your Grand­chil­dren

Calhoun Times - - BUSINESS NEWS - De­wayne Bowen

by mak­ing a fi­nan­cial gift for their fu­ture.

For starters, think about your grand­chil­dren’s ed­u­ca­tion. If col­lege or some type of vo­ca­tional school is in their fu­ture, you may want to help them meet some of the costs, which can be con­sid­er­able. One com­mon ed­u­ca­tion­sav­ings ve­hi­cle is a 529 sav­ings plan. With this plan, earn­ings on with­drawals are tax free, pro­vided they are used for qual­i­fied ed­u­ca­tion ex­penses. ( Keep in mind that 529 sav­ings plan dis­tri­bu­tions not used for qual­i­fied ex­penses may be sub­ject to or­di­nary in­come tax and a 10% IRS penalty on the earn­ings.) You also may be el­i­gi­ble for a state in­come tax in­cen­tive for con­tribut­ing to a 529 sav­ings plan. Check with your tax ad­vi­sor about th­ese in­cen­tives, as well as all tax- re­lated is­sues per­tain­ing to 529 sav­ings plans.

A 529 sav­ings plan’s con­tri­bu­tion lim­its are quite gen­er­ous. And, as the owner of a 529 plan, you have flex­i­bil­ity in choos­ing where the money goes – if your grand­child de­cides against col­lege or an­other type of ad­vanced ed­u­ca­tion, you can trans­fer the plan to an­other ben­e­fi­ciary. And due to re­cent tax law changes, the scope of 529 plans has been ex­panded to in­clude qual­i­fied with­drawals of up to $ 10,000 for tu­ition ex­penses per year per ben­e­fi­ciary at pub­lic, pri­vate or re­li­gious el­e­men­tary or sec­ondary schools. Be aware, though, that a 529 sav­ings plan could af­fect any fi­nan­cial as­sis­tance your grand­child might re­ceive. Although a 529 plan owned by a grand­par­ent won’t be re­ported as an as­set on the Free Ap­pli­ca­tion For Fed­eral Stu­dent Aid ( FAFSA), with­drawals from the plan are treated as un­taxed in­come to the ben­e­fi­ciary ( i. e., your grand­child) — and that has a big im­pact on fi­nan­cial aid. So, you may want to con­tact a fi­nan­cial aid pro­fes­sional about the po­ten­tial ef­fects of any gifts you’re con­sid­er­ing. A 529 sav­ings isn’t the only plan fi­nan­cial gift you could give to your grand­chil­dren. You also might con­sider giv­ing them shares of stock, pos­si­bly held in a cus­to­dial ac­count, usu­ally known as an UTMA or UGMA ac­count. How­ever, you only control a cus­to­dial ac­count un­til your grand­chil­dren reach the age of ma­jor­ity as de­fined by state law, at which time they take it over. They then can use the money for what­ever they want – and their plans may not have any­thing to do with books or classes.

Still, your grand­chil­dren might be par­tic­u­larly in­ter­ested in own­ing the stocks con­tained in the cus­to­dial ac­count – many young peo­ple en­joy own­ing shares of com­pa­nies that make fa­mil­iar prod­ucts. And your gift may even get your grand­chil­dren in­ter­ested in long- term in­vest­ing.

No mat­ter what type of fi­nan­cial gifts you give to your grand­chil­dren, make sure your keep enough money to pay for your own needs. It’s im­por­tant to bal­ance your per­sonal sav­ings needs with your de­sire to be gen­er­ous.

Giv­ing fi­nan­cial gifts can be re­ward­ing – to you and your grand­chil­dren. Con­sider ex­plor­ing some pos­si­bil­i­ties soon.

This ar­ti­cle was writ­ten by Ed­ward Jones for use by your lo­cal Ed­ward Jones Fi­nan­cial Ad­vi­sor.

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