LAFOLLETTE, TN (SPECIAL TO WLAF) – If you have grandchildren, you probably enjoy spending time with them and watching them grow. And to help them achieve a bright future, you might like to make some financial gifts — but which ones? Edward Jones Financial Advisor Zach Sheets has some suggestions.

You have several options. Let’s look at three of them:

• 529 plans – When you invest in a 529 education savings plan, any earnings growth is distributed federally tax free, as long as withdrawals are used for qualified education expenses. (Withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes, plus a 10% penalty.) And in-state residents who invest in their home state’s 529 plan may also receive state tax incentives. A 529 plan can be used for college, approved trade school programs, qualified student loan repayments and even some K-12 costs. And if the grandchild you’ve named as a beneficiary of a 529 plan decides to forego further education, you can generally switch beneficiaries to another immediate family member. You can contribute up to $17,000 in 2023, per grandchild, to a 529 plan without incurring gift taxes. Furthermore, as of the 2024–25 school year, grandparent-owned 529 plans won’t affect financial aid eligibility. However, tax issues for 529 plans can be complex, so consult with your tax advisor about your situation.

• Roth IRA – Any earnings growth in a Roth IRA is distributed tax free, provided the owner is at least 59½ and has had the account at least five years. If your grandchildren earn money from babysitting or a part-time job, they can open a Roth IRA with the help of a parent or other adult. You could “match” your grandchildren’s contributions, possibly on a dollar-for-dollar basis, to provide them with an incentive for saving. In fact, you could fully fund the Roth IRA, up to the annual contribution limit, which is $6,500 or the amount of your grandchild’s taxable compensation, whichever is less. (The annual limit is $7,500 for those 50 or older.) And your grandchildren can withdraw the contributions — not the earnings — at any time to pay for college or anything else.

• Custodial account – You can open a custodial account, also known as an UGMA or UTMA account, for a grandchild, and fund it with most types of investments: stocks, mutual funds, bonds and so on. For that reason, it can be a good way to teach grandchildren about the nature of investing — risks, returns and the value of holding investments for the long term. Plus, there’s an initial tax benefit to custodial accounts: The first $1,250 of your grandchild’s investment income (dividends, interest, capital gains) is tax free, and the next $1,250 is taxed at the child’s rate. Anything above that amount is taxed at the parents’ marginal tax rate. However, once your grandchildren reach the age of termination — usually 18 or 21, depending on where they live — they take control of the account and can do whatever they choose with the money. So, while a custodial account could be considered as a funding source for college, it might alternatively serve as a gift that could eventually enable your grandchild to fulfill another desire or goal — take an overseas trip, pay for a car or maybe even start on a path to entrepreneurship.

 Making financial gifts to your grandchildren can be rewarding — for them and for you. So, consider the possibilities carefully and put your generosity to work.

Zach Sheets and Crystal Allen are ready to serve you at Edward Jones.

Consider financial gifts for grandchildren

If you have grandchildren, you may want to help them along in life by making some financial gifts — but which ones?

You have several options. For starters, consider a 529 education savings plan, which can be used for college, approved trade school programs, qualified student loan repayments and even some K-12 costs. A 529 plan can offer tax benefits, but the tax issues can be complex, so before investing, you’ll want to consult with your tax advisor.

As another possible financial gift, you could contribute to your grandchild’s Roth IRA, which also offers tax benefits. The annual contribution limit is generally $6,500 or the amount of your grandchild’s taxable compensation, whichever is less. 

Still another possibility is a custodial account, which can be a good way to get your grandchildren interested in investing.  Be aware, though, that once grandchildren reach the age of termination — usually 18 or 21, they gain full control of the account and can do what they want with the money.

Making financial gifts to your grandchildren can be rewarding — for them and for you. So, consider the possibilities for putting your generosity to work.

Edward Jones, Member SIPC

Zach Sheets can be reached at:

Phone numbers:

423-566-4010 Office                   

865-242-6208 Cell

Email:  zach.sheets@edwardjones.com or send us a secure message if you have Online Access

Sheets said, “If you have any questions or concerns, please do not hesitate to contact
me. Thank you for the opportunity to serve you.” (WLAF NEWS PUBLISHED – 10/16/2023-6AM-PAID AD)

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