To commemorate Veterans Day, take the Smart Driver online course and enjoy a 25% discount. learn more.

Written by: Patricia Amend, AARP, November 11, 2021

This year you decide to give your grandchildren a holiday gift—not the latest fashion accessory. Fortunately, you have many options, some of which have tax benefits. At the same time, they are still children, and savings bonds are not as good as PlayStation. You don't want to disappoint them.

Going back in time, if your grandparents gave you cash, savings bonds, or stocks to deposit in your new bank account, you wouldn't know how lucky you were. This is not the shiny bicycle or ballet shoes you were hoping for. But in the end, you realize that this is a valuable first step towards financial knowledge and a solid future.

How can you sweeten the transaction and make your gifts-and learning money-enjoyable? How about including board games? Hasbro now provides at least 16 different versions of Monopoly games for players of different ages, including super electronic banking games for children 8 years and older. For younger children, there are Loose Change from Learning Continuum, and money-making games and allowance games from Lakeshore Learning.

Enjoy the game with your grandchildren; they will remember. Bradley Lineberger, Certified Financial Planner (CFP) of Seaside Wealth Management in Carlsbad, California, said: "Your time is an invaluable gift." There is a lot of wisdom to pass on to the next generation. , Spending time with grandchildren will pay off in the future. "

For older children, age-appropriate books, publications or documentaries may attract their attention. Lineberger likes George Clason's "The Richest Man in Babylon" and David Chilton's The Wealthy Barber. "The latter, written in 1926, is a timeless classic, but both are amazing," Lineberger said.

For teenagers or college students, CFP George Gagliardi of Coromandel Wealth Management in Lexington, Massachusetts recommends subscribing to Kiplinger or Money newsletters or magazines. In addition to his suggestions, the documentary "The Most Important Course You Never Have" also introduced eight personal finance educators who talked about money with high school students, and students and teachers shared their stories. This 35-minute video produced by the non-profit organization Next Gen Personal Finance is available on YouTube.

When it comes to cash and other monetary gifts, there are six possibilities. However, please consult your financial planner and/or tax advisor before taking any action. In addition, talk to your children to see how your gifts affect their family financial plans.

Your first idea is to start or add a 529 college education savings plan. great. In 2020, the average annual cost of tuition, fees, and room and board for four-year public universities in the state is close to $22,000—the average annual cost of four-year private universities is $50,000. Plan withdrawals can be used for these eligible expenses.

For tax purposes, your donation will be treated as a gift. You can give up up to $75,000 ($150,000 per couple) in a year to reduce your taxable estate, provided you treat it as the same amount you received during the five-year period (IRS Form 709). "Or, if you want, you and your spouse can donate $15,000 for each child each year," Lineberger said. In other words, you provide $15,000 and your spouse provides $15,000. If you have three grandchildren, the total is $90,000, excluding gift tax consequences.

In addition, according to the SECURE Act effective from January 2020, your grandson (beneficiary) can use these funds to pay for qualified expenses related to the apprentice and pay a maximum of $10,000 during his or her lifetime to repay the student loan. The money can also be used to pay for qualified education for elementary and middle school students—up to $10,000 per year per beneficiary. All of these are tax-free.

What about student funding? Since 529 funds are considered parental assets, they have little impact on the expected family contribution (EFC) of the family and the financial needs of students. Compared with the Uniform Gifts for Minors Act (UGMA)/Uniform Donations Act for Minors (UTMA) accounts or Coverdell Education Savings Accounts (ESA), these programs have several advantages. For more information, please consult your financial planner or tax advisor.

Have you ever thought about savings bonds? John Scherer, the CFP of Trinity Financial Planning in Middleton, Wisconsin, recommends buying Series I savings bonds directly from TreasuryDirect.gov. "This is a safe investment supported by the U.S. government, with guaranteed interest rates and inflation factors. If used in universities, the proceeds can be tax-free." The interest rates on these bonds changed on May 1 and November 1, depending on the specifics Fixed interest rate (0%) for bonds and inflation. Currently, the annualized yield of these bonds is 7.12%.

Rose Swanger, CFP of Advise Financ e, Knoxville, Tennessee, says that you can encourage your grandchildren to develop good financial habits by opening a custodian or guardian Roth IRA for them, because they start on their own make money. She said that, in fact, they may want to enjoy the money they receive from babysitting, lawn mowing or summer jobs. In this case, you can make matching contributions in the first few years to show the growth of funds after the investment, and then let them start contributing. "I hope they will be more motivated after seeing the results."

In most financial institutions, Ross does not have a minimum contribution, and the maximum contribution for children in 2021 is $6,000. You control the assets and make all investment decisions until your child is 18 years old, at which time he or she will assume control. As adults, they can withdraw the housing down payment, unreimbursed medical expenses or qualified education expenses without being penalized. Like you, they can withdraw tax-free after the age of 59 1/2.

Join now and get immediate access to discounts, plans, services and the information you need to benefit all areas of your life. 

To help children learn more about investment, why not open a custodial brokerage account for them and buy stocks in companies they know and want to follow? "This may stimulate their interest in investing, and this interest will stay with them throughout their lives," Lineberger said. Leon LaBrecque is the CFP of the Sequoia Financial Group in Troy, Michigan, allowing his children to buy stocks in companies that love and use products. "Some of their stock selections are normal, such as Mattel," he said. "But my boss bought Apple early, and it paid off. After graduating from college, she got a good down payment for the house."

When it comes to saving and spending, your grandchildren also need to practice to avoid making mistakes in the future. Debit cards with certain limits can help. You can provide them with a card with a fixed monthly allowance — — — — — — — — — — — — — — — — — — — — — — Gliardi recommends a “debit card with a fixed monthly allowance” [Amount depends on age] Comes with a way to track their expenses and understand where the money is going. "Fortunately, there are many numbers available, including the Greenlight debit card with an educational app. Whenever children make money from doing housework, they can add the amount to the card. They can also learn how to set up savings Goals and investments. Parents can set flexible controls and get real-time notifications every time their children buy a card.

Finally, why not surprise your college students by sending money gifts through digital payment apps such as Venmo or Zelle? Although school can be fun, students are often financially struggling and pressured in terms of essays, exams, and grades. Janice Cackowski, a CFP analyst at Centry Financial Advisors in Willoughby, Ohio, said they can use the money to pay for living expenses and even go home for a vacation. "You can also give them gift cards to local institutions so they can stock up on food and other needs for the dorms." Doing so may help them relax and make the most of their college time.

Patricia Amend has been a lifestyle writer and editor for 30 years. She is a full-time writer for Inc. magazine; a reporter for Fidelity Publishing Group; and a senior editor for Published Image, a financial education company acquired by Standard & Poor's.

Note: We are currently changing our review service, so previous reviews may take a few days to appear. Log in or register at AARP.org to join the conversation.

AARP is a non-profit, non-partisan organization that empowers people to choose their lifestyles as they grow older.

You will leave AARP.org and go to the website of our trusted provider. Supplier's terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.

You will leave AARP.org and go to the website of our trusted provider. Supplier's terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.

You will leave AARP.org and go to the website of our trusted provider. Supplier's terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.

You will leave AARP.org and go to the website of our trusted provider. Supplier's terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.

You will leave AARP.org and go to the website of our trusted provider. Supplier's terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.

Your email address is now confirmed.

You will begin to receive the latest news, benefits, events, and plans related to the AARP mission, which enables people to choose their lifestyles as they age.

You can also manage your communication preferences by updating your account at any time. You will be asked to register or log in.

Within the next 24 hours, you will receive an email confirming your subscription to receive emails related to AARP volunteer services. After confirming your subscription, you will receive regular communications related to AARP volunteer services. In the meantime, please feel free to find ways to change your community at www.aarp.org/volunteer

Javascript must be enabled to use this website. Please enable Javascript in your browser and try again.