Smart Spoiling: Why You Should Invest in Your Grandchildren

If every grandparent around the world has something in common, it's likely that they love spoiling their grandchildren. If you’re one of them, lavishing these kids with gifts may be one of the biggest joys in your life. Yet it may be time to consider expanding your definition of indulgence. When you begin investing for your grandchildren's financial future, your expressions of love extend far beyond the days of teddy bears and Disneyland trips.

Take them to school

It’s never too early to start thinking about college. With proper planning, you can give the gift of higher education either as a sole patron or along with other family members. Setting up a 529 plan may be ideal for pursuing this goal. Here are six ways a 529 plan may benefit you:

1. Provides federal tax benefits.
   Your investment can grow tax-deferred, and funds withdrawn for qualified higher education expenses are completely free from federal income taxes.¹
   
2. Fits nearly any budget.
   There’s no minimum annual contribution, and you can contribute as much as $14,000 per year per child, or up to $70,000 total in a single year, without incurring federal gift taxes.²
3. Is accepted nationwide.
   It can be used at any accredited college, university, or technical school that’s eligible to accept federal financial aid (and nearly all are).
4. Can be used for most expenses.
   This includes tuition, fees, some equipment, supplies, and reasonable room and board.
5. Can let you invest the way you want.
   Depending on the plan, you can choose from a variety of investment choices.
   

School rules!

If you do decide to contribute to their education, discuss parameters before school begins. In other words, if you're uncomfortable supporting your grandkid's major in comparative indigenous ceramics, now's the time to speak up. Here’s a list to get the discussion started:

• Is there a minimum GPA you expect them to uphold? If so, what is it?
• Will your grandchild need to finish their undergraduate degree within four years, or is five years acceptable?
• Will you ever give your grandchild a mulligan on your guidelines? How much leeway will they have?
• If multiple family members are contributing to the plan, who ultimately decides whether the funds are distributed?

Pre- and post-collegiate support

Of course, you don’t have to wait for college to support their education. Think about other ways to contribute, whether it’s covering the cost of music lessons, exchange programs, or private school tuition. Just take into account your financial goals and the state of your investments to determine how much you can comfortably give.

Post-collegiate support is something else to consider. By establishing a trust for your grandchildren, you could help them start a business or buy a first home. You can also specify how and when a trust is distributed. Just know it may not be the best option for you if you’re giving a lower amount (e.g., $5,000), due to the setup fees.

As a grandparent, when you invest for grandchildren in any of these ways, you’re doing more than indulging them. You’re ultimately helping to give them advantages that continue far into the future.