Give your grandchildren a financial boost

Kiplinger’s Personal FinanceKiplinger’s Money Power
With as little as $1,000 — or as much as $100,000 — your generosity can make a difference.
WITH $1,000
Contribute to a Roth. If your grandchildren earn money, you can reward their hard work and seed their retirement by contributing to their Roth IRA or opening one for them. The contributions to each account may not exceed the amount they earned for the year, up to a maximum of $5,500 in 2017. They can withdraw the contributions tax- and penalty-free at any time, and after age 59 1/2, they can withdraw both the contributions and earnings tax- and penalty-free.
WITH $10,000
Pay off student loans. By paying your grandchildren’s loans off after they graduate, you won’t affect their eligibility for financial aid. And even if the loans add up to much more than your gift, you can significantly reduce their monthly payment or enable them to pay off the debt much earlier. Say your grandson has $26,800 in loans (the average amount at graduation for borrowers at public schools), with a combined interest rate of 4.25 percent. If he paid off the loans over the standard 10-year repayment program, the monthly payment would be $275 a month, according to www.finaid.org. Reduce Retirement the amount by $10,000, and the monthly payment would be just $172 a month over 10 years. For the same $275 monthly payment on the smaller debt, your grandson could shave four years off his repayment period.
WITH $100,000
Cover college from a tax-free fund. To really go grand, set up a 529 plan with your grandchild as a beneficiary and use it to fund his or her education. The money in 529 plans grows tax-deferred and escapes taxes altogether if the withdrawals are used for qualified educational expenses, such as room and board. (Otherwise, you’ll pay taxes and a 10-percent penalty on earnings.)
You and your spouse can each contribute up to $14,000 a year ($28,000 total) per child in 2017 without triggering the gift tax. But couples can also contribute as much as $140,000 (five times $28,000) at one time; contributing the money all at once removes it from your taxable estate. For tax purposes, you can elect to have it spread out in equal amounts over five years. You may be able to get a state income-tax deduction for a portion of your contribution, depending on your state (see www.savingforcollege.com). If your grandchild doesn’t go to college, you can switch beneficiaries, or use the money yourself, in which case you’ll pay the penalty and taxes on the earnings, and the money reverts to your estate.

Give your grandchildren a financial boost
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