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Top 5 financial gifts for your grandkids

If the money is just handed to them, there won’t be any prudent choice that emerges from it. In this blog, we take you through the perfect gifts that you can bestow to your grandchildren for their future.
Top 5 financial gifts for your grandkids
Roth IRA is the most essential and intelligent gift that you can give to your grandchildren. If you deposit even a portion of this to a 529 college savings plan, there will be a lot less to worry about funds.
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Your toddler grandkids might like a toy but the adult ones need long-term financial gifts that remind them of you for a lifetime. The decision depends on the gift of your choice as told by many experts. Cash is always a relevant alternative for gifting but it does not stand against the factor of inflation and is certainly not good for the long term. 

There is also the temptation to spend that cash which is tedious to transfer good spending habits for the coming generations. People should inculcate the habit of saving and that can be done by earning the money. If the money is just handed to them, there won’t be any prudent choice that emerges from it. In this article, let’s see the perfect gifts that you can bestow to your grandchildren for their future.

Roth IRA 

Roth IRAs are the most essential and intelligent financial gifts that you can give to your grandkids. This can be from the earned income of babysitting or paper routes. 

You can commit the portion of the earnings that your grandchild will earn in a year subject to the limit of $6,000 for 2021. Thinking about retirement at such a young age will be great for your grandchild.

Plan for college savings

The average amount to go to a private university was $54,880 and $26,820 for a public university for the last year. If you deposit even a portion of this to a 529 college savings plan, there will be a lot less to worry about funds. 

These investments are free of taxes if you use them only for purposes related to the college. The contribution can be over $15,000 per child or you can prepay for all five years, i.e. $75,000 lump sum. If it is a couple, this amount will be 2x.

You can also invest in the Coverdell ESA savings plan. Here you can use the money for secondary and primary schools. The point here is that there will only be $2,000 for each grandchild in a year. Given that your gross income after adjustment doesn’t exceed $110,000 for single people and $220,000 for married people.

A college savings plan is only fit for education spending. In case your grandchild decides not to attend college, you can transfer the amount to another beneficiary. If you use these funds for non-education purposes, then you will be taxed or even have to pay a 10% penalty.

Municipal bonds

The vintage financial gifts of EE savings bins are ideal for your grandkids. The interest rates are good and you won’t have to pay any federal income taxes and for certain cases, the local and state tax as well. You should invest in bonds with the savings rating of BBB or AAA.

also know about: 10 Ways To Mentor Kids About Money

Gold

Gold coins are a catch and a good gift. However, there have been many instances where the rare coins and collectibles only turn out less or just equal to the amount of what they were gifted for. The tax levied on these capital gains was only 28%. 20% is the rate for long-term gains on different investments.

A more suitable option than gold coins can be exchange-traded funds (ETF) or stock in companies that do gold mining which will help you avert the high taxes on collectibles.

Custodial investment account

This is a good investment that helps a newbie understand how to invest. The name on this account is your grandchild. However, you will be the guardian till your grandchild reaches the age of 18 or 21. This is based on rules set by your state.

In this year, the first $1,100 is free from investment gains. But nobody is under obligation to report them. The next amount of $1,100 will be imposed with a tax upon the marginal tax rate. You will have to file a return for it. 

You will be the custodian of this account. If the gain is more than $2,200 it will be your responsibility to oblige with the taxes. However, make them at the marginal income tax rates instead of the lower rate for these gains.

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Author

Picture of Devanshee Dave

Devanshee Dave

With over 4 years of experience in financial writing and a master’s degree in mass communication & journalism, Devanshee is currently preparing for her CFA (Chartered Financial Analyst) exams. In her spare time, she likes to dance and learn about cosmology, astronomy and anything that can expand her knowledge from the big bang to the big crunch.

Editor

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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