This article was featured in Downeast Magazine, February 2025
The team at Waterville’s Golden Pond Wealth Management advises clients who wish to help their family’s younger generations.
Becoming a grandparent is a milestone when many adults start to consider how they can help preserve their grandchildren’s future. At Golden Pond Wealth Management, financial planner Katie Brann helps clients navigate the some of the smartest and most efficient ways they can provide for their grandchildren.
Can a grandparent set up a college savings account for their grandchildren?
Yes, a 529 account is generally considered a college savings account, and there can be multiple 529 accounts for the same beneficiary. In some cases, parents might have an account they add money to, and grandparents might have a separate account. One of the new advantages of grandparents setting up their own 529 is that the FAFSA no longer counts grandparent-owned 529 accounts as an asset that can affect a student’s eligibility for financial aid. Also, 529 account earnings are not taxed as long as the funds are used permissibly, which is an advantage over a regular savings or investment account.
Can a grandparent contribute towards a grandchild’s future retirement?
Grandparents can open a Roth IRA with their grandchild as the beneficiary with a maximum contribution of $7,000 annually — as long as the grandchild has enough earned income to match that amount. If the grandchild earns a couple thousand dollars at a summer job, they don’t need to put those exact earnings in a retirement account, but the grandparent could say, “I love your work ethic, and I’m going to deposit that equivalent amount for you.” The good thing about a Roth IRA is that it encourages long-term savings. If the grandchild is 16 and lets that money grow until they’re retired, that’s a nice amount.
What are the current guidelines to avoid paying taxes on cash gifts?
The current gift tax exemption is $19,000. If a person gifts that amount to both their child and that child’s spouse, that’s a total of $38,000 that nobody has to file a gift tax return for. Some clients will do this as part of their annual giving so they can see their family benefit from that early inheritance. They can see the difference it makes for their family, during their life, and earlier in the life of their loved ones.
How should clients approach tricky money conversations with family?
It’s not easy for multiple generations to sit down and talk about finances. It’s important to recognize that it’s very hard on young families right now, in a lot of cases, just to make ends meet. For many, saving for college or other longer term financial goals feels out of reach. I think it can be eye opening for a grandparent who has goals in mind for their family to initiate that conversation. Times have changed in terms of the village that’s available to young families. Whether your family needs a little help with a college account or needs a babysitter for a date night, those connections are really valuable and appreciated.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.