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Question for the Money Doctors

Question submitted on May 22, 2017.


What is the best way to start saving/investing for my grand child? Thank you


The answer depends on what it is you are saving/investing for, as well as your grandchild's age, time horizon and objectives for the funds.  There are many options depending on what you are attempting to accomplish.

If saving/investing for higher education, 529 accounts are designed to save for future college costs.  Distributions used for qualified higher education expenses (college tuition, books, fees, etc.) are generally tax-free, including account earnings.

If saving/investing for a grandchild's future retirement, a Roth IRA might be a reasonable approach if they are income eligible and have enough earned income for you to make the contributions (currently $5,500 per year for individuals under age 50 in 2017).  The grandchild can have contributed to the Roth IRA the lesser of their earned income (I.e. W-2 wages from a summer job) or $5,500 and any future growth in the account is tax free under normal retirement circumstances under the current Roth IRA rules, as are the original contributions.

If you looking to save/invest for a grandchild as a way to introduce them to these concepts and educate them, often a UTMA or UGMA account depending on your state of residence is a good approach.  The funds can then be invested on the grandchild's behalf if that's your objective.  Any gains would be taxable to your grandchild each year as the beneficiary and the account becomes their asset upon reaching the majority age of the state of residence.

In all approaches, again, depending on your specific objective, an investment component may need to be looked at and investment decisions made.  An advisor in your area, such as one with credentials like the CPA/PFS, as well as experience in multi-generational tax and financial planning, would be a big help to you in refining your objectives and plan.  Visit to find a specialist in your area.




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