Being a grandparent gives you new opportunities to invest. Learn how investing for grandchildren may help you spoil them long into the future.
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.
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:
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:
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.
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Before investing in any 529 college savings plan, carefully consider the investment objectives, risks, charges, and expenses involved. This and other information regarding the plan is included in the issuer's official statement, which should be read carefully prior to investing. Investment return and principal value of an investment will fluctuate so that an investor’s units, when withdrawn, may be worth more or less than their original cost.You should be aware that other states may sponsor their own qualified tuition plans and may offer a state tax deduction or other benefits that are limited to residents who invest in that plan. You should consult with your financial, tax, or other advisor about state and local tax benefits or limitations based on your specific situation. Favorable tax treatment by your state of residence should be one of many appropriately weighted factors you should consider in making an investment decision.1 Withdrawals used to pay for qualified higher education-related expenses are free from federal income tax. These expenses include tuition, fees, computer equipment and software, supplies and equipment required for enrollment at a qualified institution of higher education. Room and board is considered a qualified education-related expense if the student is enrolled on at least a half-time basis. The earnings portion (if any) of a Non-Qualified Withdrawal will be treated as ordinary income to the recipient and may also be subject to an additional 10% federal tax. 2 A donor may elect to treat a contribution to a beneficiary’s account as made ratably over a five-year period. As a result, a donor may make a contribution to a beneficiary’s account of up to $70,000 (or up to twice that much if the donor and his or her spouse elect to “split” gifts) without any negative gift tax consequences, so long as the donor does not make any additional contributions to the account (or any other gifts to the account beneficiary) during that tax year or any of the succeeding four calendar years. A Federal Gift Tax Return (Form 709) is required to be filed. Please consult with your tax or legal professional. If the donor dies before the end of the five-year period, the portion of the contribution allocable to years after the donor’s death will be includible in the donor’s estate for federal estate tax purposes. No additional contributions can be made for any beneficiary when the fair market value of all accounts maintained for that beneficiary within all programs offered by the state of Nebraska reaches $360,000. Assets can grow beyond $360,000.
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