Everyone I’ve spoken to about becoming a grandparent says it changes their life. Now that I’ve had my first grandchild recently, I can honestly say - I completely get it! Becoming a grandparent is one of the most exciting things I’ve ever experienced.
Many of my clients feel the same way, and I hear many of the same questions from them:
Let’s walk through the financial moves you can make when you’re expecting your first grandchild (or your second, or third!).
If you’re interested in helping your new grandchild save for their future college education, it can be helpful to speak with their parents about opening up a 529 Education Savings Plan. 529 Plans are set up in your name, with your grandchild as beneficiary, and anyone can contribute to them. Contributions are made with after-tax funds, but grow tax-free, and can be withdrawn tax-free if used for tuition, room and board, books and other qualified education expenses.
529 Plans also offer the option to front-load their funding. In other words, you can give up to 5 years of annual gift tax-free contributions (currently $15,000) at the time the account is opened. This could mean you have the ability to give up to $75,000 at once to fund your grandchild’s college savings. Of course, smaller contributions can also be a huge help and will work to get your grandchild off to an excellent start in life.
In 2019, you can give up to $15,000 to an individual annually and avoid the gift tax. This could be leveraged by new grandparents who want to help fund their grandchild’s savings account. Whether the savings are used for education, or just to save for future expenses such as a wedding, or home buying. If you’re married, you and your spouse can each gift the new grandchild $15,000 for a total of $30,000.
Having a baby in 2019 is no small expense. Even for those with exceptional health coverage, the cost average is close to $11,000. If you want to help the new parents with their medical bills, it’s important that you pay the bills directly to the hospital or medical provider. When you pay the provider directly, the funds don’t count toward your annual gift tax exclusion limit. However, if you want to send your loved ones a cash gift to pay for their medical expenses, you can still do that - just remember that your total annual cash gifts are not taxed up to $15,000.
Don’t have thousands of dollars to gift your new grandchild or the new parents? Don’t worry! There are plenty of small ways you can offer your help. For example, paying for a meal service or house cleaning service can take a huge weight off the young family’s shoulders while they acclimate to life with a baby. Think of smaller things you could do that would make a positive impact on their lives, and work them into your budget.
If you’re expecting your first grandchild, congratulations! I’d love to talk with you about financial planning as a grandparent, and how you can start leaving a legacy for the generations to come.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.