Janice McGarry
If you have grandchildren in high school now, you know they’re going to be off starting their adult lives in what feels like the blink of an eye. Any financial support you provide could help set them up for success in college and beyond. But it can be tricky to balance your own retirement plans and financial goals with your desire to do everything you can for your grandkids. Read on for five key pieces of financial advice for grandparents with teenage grandchildren.
FINANCIAL ADVICE FOR GRANDPARENTS WITH GRANDKIDS IN HIGH SCHOOL
- How to help save for higher education
Many grandparents already contribute to 529 plans or other education savings accounts for their young grandkids. Once a grandchild reaches high school and their future plans start taking shape, it’s a good time to reassess your role in their college savings plans. You may want to boost your contributions to existing 529 accounts, or use other strategies to grow a dedicated fund for their future expenses.
It’s important to get on the same page with their parents so they know how much support you plan to provide. The student’s plans could be a factor in how you move forward as well. You might want to increase your 529 contributions for the rest of their high school career if you know they’re working toward attending a more expensive school. Or, your grandchild might choose a career path that doesn’t include college. In that case, contributing to their 529 plan might not be the best way to provide financial support since they will incur penalties and taxes to withdraw 529 funds for non-educational expenses.
- Think tax strategy before making any gifts.
There are several ways tax strategy can intersect with providing financial support for your grandkids. Working with a financial planning advisor can help you understand your options and choose a tax advantaged way of making a gift. For example they can review gift tax and estate tax liabilities. They can also walk you through annual and lifetime gift tax exclusions to help avoid unexpected tax consequences for your heirs.
- Involve the grandkids in their own investments.
Depending on your contribution, investments that you make on your grandchild’s behalf right now could help them buy their first home in their 20s, or retire early in their 50s. Also, engaging them in the process is a priceless learning experience. While most kids probably aren’t going to be excited by investing theories, giving them their own stocks to monitor is a whole different story.
The easiest way to help a minor child invest is to open a custodial brokerage account for them. Deposit some money in the account for them, then sit down together to look through their options for buying stocks and/or other securities. There’s no better way to teach kids about investment concepts like risk tolerance, index investing, capital gains tax strategy, and compound interest than with hands-on experience tracking their own money. Talking about investment strategy could also create natural segues to share some financial wisdom with your grandkids. That being said, it is important to note that any funds in a custodial account are controlled by you until the child reaches the age of 18 or 21, depending on the state you live in. At that point in time, the child has full control of the account.
- Consider budgeting specifically for shared experiences and activities.
The high school years can be a prime time for grandkids to make meaningful lifelong memories with their grandparents. If you’d like to take them to Europe or splurge on a couple of Red Sox games every season, great! Earmarking money for those experiences lets you enjoy them fully instead of worrying about your retirement savings. (And your grandkids will feel pretty special knowing that you put money aside just to do fun things together.) It can also be a lesson in budgeting and making choices about leisure spending.
- Revisit your estate plans now.
As grandkids move toward adulthood, their role in your estate plans may evolve. If you haven’t revisited your will, trusts, and other estate planning documents in the last few years, do that now. You may want to update your will to bequeath certain sentimental property to the grandchild who will most appreciate inheriting it, for example. You may also want to update the terms of a trust, or create a new trust fund for a grandchild’s benefit. Trusts can be a powerful tool for passing along investment property and preserving wealth for future generations. As your grandkids move toward adulthood, great-grandchildren may not be too far off. Comprehensive estate planning could help you set them up for success, too.
Individualized Financial Advice for Grandparents
Sachetta’s investment management advisors want to help you help your grandchildren thrive. The support you provide can allow them to avoid debt and start their adult lives on strong financial footing. Instead of relying on general financial advice for grandparents, let us give you customized guidance based on your specific grandkids and your specific financial goals. Contact us today.
Janice joined Sachetta as Manager of Wealth Management Operations with the merger of Wealth Management Advisors. For ten years prior she was Operations Manager for WMA. She began her career in financial services in 1996 and has worked at both national firms and small wealth management practices. Over that time, she has excelled in client relationships as well as the operational aspects of wealth management firms. Janice is responsible for the day to day operations of Sachetta. This includes trading and rebalancing portfolios, firm compliance, servicing client requests, and handling our client onboarding processes as well as ensuring all of our systems are running smoothly.