Grandchildren

Grandchildren — Tips on Providing for Future Generations

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Grandchildren — Tips on Providing for Future Generations

Being a grandparent may just be one of the most fulfilling jobs imaginable. The selling points go like this: You get all the joy and love and fun that you remember from raising your own kids, but with very little of the financial and emotional stress that comes from the 24/7 parenting responsibility.

Assuming more financial responsibility

That job description may be a little dated. Today, many grandparents choose to provide financial support for their adult children and grandchildren. Grandma and grandpa are helping to fund things like mortgage and rent payments, health care, day care, education and everyday living expenses. While it’s wonderful to help your family, make sure you aren’t putting your own retirement security in jeopardy.

Balance your budget

Take a look at your household budget and factor in any grandchildren expenses. Remember to keep your own retirement income needs on track by striking a balance between long-term growth potential and short-term income requirements. Remember to consider your personal risk tolerance and investment objectives.

If you can meet your own income needs for the duration of your retirement and still afford to contribute to your grandchildren’s expenses, here are several ways you might be able to help:

Make sure your own finances are in order before you offer financial support.

  • Gifts to children and grandchildren — The IRS allows your to make a gift to either your child or grandchild each year that is free from taxes. This gift can include cash, property or investments. This can be a great way to help your family with expenses such as childcare, healthcare or housing. In 2012, the gifting limit was $13,000 per person. For additional information please visit IRS.gov.
  • College costs — College education costs keep rising, which makes this a particularly challenging expense to plan for, particularly for families with several children. Consider opening a 529 college savings plan for each grandchild. If the parents already have a 529, you can make additional contributions to the plan. Just be sure you won’t need the money you contribute because there are penalties and taxes if you withdraw funds for anything other than qualified college expenses. Also, funds in a grandparentowned 529 may be factored in when considering Medicaid eligibility, unless exempted by state law.
  • Wills and trusts — When establishing your estate plan, it's important to remember to state how you intend your assets to be distributed to your children and grandchildren.
  • Life insurance — If you are concerned about being responsible for your grandchild’s care if something happens to your son or daughter, consider buying a life insurance policy on your child, if he or she doesn’t already have one (they should).

Pay yourself first, then the grandkids

It can be tremendously gratifying to “invest” in your kids and grandkids. Just make sure your own finances are in order before you offer financial support. We can help show you how to make that work. 

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or
have taxable income in has a 529 plan that offers favorable state income tax or other benefits that are only available if you
invest in that state's 529 plan.

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