I Would Like to Gift Money to My Child or Grandchild

Around this time of year, we often have clients who find themselves in the giving spirit of Christmas. Along with increased charitable giving, clients will start thinking about gifts that will leave a lasting impact on their children or grandchildren. Children will grow out of clothes and toys, but saving for their future isn’t something they will typically grow out of. The number one question you should ask yourself before making a monetary gift to a child is:

How do you want the child to benefit from your gift? Is the gifts intention to be strictly used for college savings? Or do you just want to provide the child with general savings to jump start their adult lives?

Education savings:

529 Account: A very common tool for saving money specifically for college education use is the 529 plan. Contributions to this plan can be made by parents, grandparents, etc. and provide a form of tax free growth for college education. 529 accounts allow for a much larger annual contribution.

Coverdell ESA: Coverdell education savings accounts are another form of college savings. A big plus for these accounts is that they can be used to help pay for private elementary and high schools. A downside to these accounts however is the $2,000 a year contribution limit.

General savings for the child:

UTMA: If you aren’t set on the money being used for a college education, you may consider a UTMA. This account allows you to save money for the child, but when they reach age of majority in their state of residence the child is free to use the savings in whichever manner they choose. In North Carolina the age of majority is 21. Something to keep in mind with UTMA accounts is that once the child turns 21 they are free to use the funds in any way they please.

These some of the savings tools in which we receive the most questions on, but are just a couple of the possible avenues of gifting money to children to benefit them in the future. Please refer to some of our other blog posts on this subject:

What’s Spookier than College Savings

College Planning

Thinking Outside the 529 Box

529 Traps

Depending on which account you utilize, impacts a number of different factors including taxes, age restrictions, and financial aid. We have found this website useful when comparing one savings tool vs. another.