6 Money Gifts Your Grandchildren Will Appreciate

1. 529 plan for educational expenses

Your first thought is to start, or add to, a 529 education savings plan for college. Great. In 2020, the average annual cost of tuition, fees, and room and board for a four-year, in-state public college was almost $22,000 — and it was $50,000 for a four-year private college. Plan withdrawals can be used for these qualified expenses.

For tax purposes, your contributions will be considered gifts. You can give up to $75,000 ($150,000 per couple) in a single year to lower your taxable estate, provided you treat it as if you made it in equal amounts over a five-year period (IRS Form 709). “Or you and your spouse could give $15,000 per year, per child, if you prefer,” Lineberger says. That is, $15,000 from you and $15,000 from your spouse. If you have three grandchildren, that’s a total of $90,000 without gift-tax consequences.

Also, under the SECURE Act, in effect since January of 2020, your grandchild, the beneficiary, can use these funds to pay for qualified expenses related to apprenticeships, and up to $10,000 over his or her lifetime to repay student loans. This money can also be used to cover qualified education expenses for elementary and high school students — up to $10,000 per beneficiary per year. All of this is tax-free.

What about student financial aid? Because 529 funds are considered parental assets, they will have a minimal effect on the family’s expected family contribution (EFC) and the student’s financial need. These plans have several advantages over a Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA) account or a Coverdell educations savings account (ESA). For the details, consult your financial planner or tax adviser.

2. Series I savings bond

Have you thought of a savings bond? John Scherer, a CFP at Trinity Financial Planning in Middleton, Wisconsin, suggests purchasing a Series I savings bond directly from TreasuryDirect.gov. “This is a safe investment that’s backed by the U.S. government, with a guaranteed rate and an inflation component. If used for college, the gains can be tax-free.” Interest rates on these bonds change on May 1 and November 1, based on the bond’s fixed rate (0 percent) and inflation. Currently, these bonds earn an annualized rate of 7.12 percent.

3. Custodial Roth IRA

You could encourage good money habits by opening a custodial or guardian Roth IRA for your minor grandkids, as they begin to earn their own money, says Rose Swanger, a CFP at Advise Finance in Knoxville, Tennessee. Realistically, they’ll probably want to enjoy the funds they’ve earned from babysitting, mowing the lawn or a summer job, she says. In that case, you could make matching contributions for the first few years to show how money grows when invested, and then let them start contributing. “Hopefully, they will become more motivated once they see the results.”

At most financial institutions, there is no contribution minimum for a Roth, and the maximum contribution for kids is $6,000 in 2021. You control the assets and make all investment decisions until the child is 18, when he or she assumes control. As adults, they can make withdrawals without penalties for house down payments, unreimbursed medical expenses or qualified educational expenses. Like you, they’ll be able to make tax-free withdrawals after age 59 1/2.

4. Custodial brokerage account

To help kids learn even more about investing, why not open a custodial brokerage account for them, and purchase shares of stock of companies they know, and will want to follow? “This may create an interest in investing that they will carry throughout their lives,” Lineberger says. Leon LaBrecque, a CFP at Sequoia Financial Group in Troy, Michigan, let his kids buy stock in the companies of products they liked and used. “Some of their stock picks were normal, like Mattel,” he says. “But my oldest bought Apple early, and it paid off. She had a nice down payment on a house once she got out of college.”

5. Debit card for young people

Your grandkids will also need practice when it comes to saving and spending in order to avoid mistakes in the future. A debit card, with some boundaries, can help. You might offer them a card with a fixed monthly allowance — the amount dependent upon their age — that tracks their expenses, so they can see where the money is going. Gagliardi suggests “a debit card with a fixed monthly allowance [with the amount dependent upon age] that comes with a way to track their expenses and understand where the money is going.” Fortunately, there are a number available, including the Greenlight debit card, which comes with an educational app. Whenever kids earn money from chores, the amount can be added to the card. They can also learn about setting savings goals and investing. Parents can set flexible controls and get real-time notifications every time their kids use the card for a purchase.

6. Cash for college expenses

Finally, why not surprise your college student with a monetary gift sent via a digital payment app such a Venmo or Zelle? While school can be fun, students are often financially strapped and stressed about papers, exams and grades. They could use the money for living expenses or even a trip home for the holidays, says Janice Cackowski, a CFP at Centry Financial Advisors in Willoughby, Ohio. “You might also give them gift cards to local establishments so they can stock up on food and other needs for their dorm rooms.” Doing so may help them to relax a bit and get the most out of their college years.​

Patricia Amend has been a lifestyle writer and editor for 30 years. She was a staff writer at Inc. magazine; a reporter at the Fidelity Publishing Group; and a senior editor at Published Image, a financial education company that was acquired by Standard & Poor’s.