a grandfather hugging their grand daughter

Best Investment Gifts for Grandchildren

According to an article on CNN Politics, Millennials and Gen Z kids will be worse off financially compared to their folks at the same age. Between the ever-rising cost of living, surging unemployment rates, crippling student loans, and the ridiculous house prices, kids have no hope of building wealth in the future.

If you are a well-off grandparent who would like to secure their grandkid’s future, and at least cushion them from the impending doom, investment gifts are the best option. A savings account on Christmas may not be the most popular gift that morning, but it sure will be appreciated a few years from now.

So, are you curious to know the best investment gifts for your grandchild? Let’s explore some appropriate and awesome ways to transfer wealth to your grandchild.

Fund their Education/ College Savings Plans

The cost of college and other educational requirements is so high for parents that it might be better to have children learn a trade. For the lucky few who the government supports, student loans become a noose on their necks sooner or later.

But, it doesn’t have to be so for your grandchild. There are many ways to fund your wonderful grandchild’s education. You can pay direct funds to their college through a check, for example.

Or, you can fund their education using the 529 college savings plan. The plan is an account you set up in your state. You put a fixed amount of money in that account throughout your grandchild’s life until they go to college. If your grandchild decides to move to another state to pursue college, you can still use this plan to pay for their tuition and other expenses incurred.

The best part about this account is that it grows tax-free. It works like a Roth 401K or a Roth IRA. Also, inside the 529 plan, you can invest in ETFs, stocks, and bonds.

But, what if your grandchild decides not to go to college?

  • If they want to pursue trade work, you can use that account to pay for their vocation school expenses.
  • Also, if they don’t want to go to any schooling altogether, you can pass down that account to another grandchild or family member. You can even transfer the money in that account for yourself if you want to go to school to pursue more education.
  • Alternatively, you can pull out the money you’ve saved in that account and pay a ten percent penalty.

Invest in Shares and Stocks

Are you presently investing in the stock market? Well, you can get your grandchild excited in the same.

You can buy your grandchild one or two stocks in a company that they’re personally interested in or can relate to because they use their products. This will be more meaningful and you can use this opportunity to teach them how stock markets work.

How can you buy stocks? Well, children can’t own stocks in their name. But you can buy on their behalf.

You can open a custodial account without going through a broker. Simply contact the company’s department of investor relations and ask for direct stock buy plans, plan prospectus as well as annual reports. If you’re satisfied with what you’ve read from the documents, go ahead and finish filling out the plan enrolment form. You’ll provide the necessary identification documentation. You’ll also name the child as the account owner and you as the custodian. Then finally, you can pay for your stock.

The great thing about stocks is that your grandchild can watch them grow or reduce in value.

Note that most stock purchasing choices come with fees that may add up if you have many grandchildren. Those fees might cut into the amount of stock you’re able to give.

Open a Custodial Brokerage Account

A custodial brokerage account is an investment account but for a minor. Other family members like grandparents can open this account, not only parents.

So, this is something you can do together with your grandchild. Then, as the years progress, you can show them how their money is growing in their account. Most likely, they will get excited about investing.

As if that wasn’t cool enough, your grandchild can use this in the future to make a down payment. Or they can use it for the rest of their working years as a retirement vehicle.

Imagine this.

You put money in that account once a year since your grandchildren are very young. Then your grandchildren put money in that account till they’re about to retire. The accumulated amount will set them up very well into their retirement.

Depending on your state laws, the state will turn over the custodial brokerage account to your grandchild once they reach 18 or 21.

Note that this account has a gift tax. Every money you put into this account is considered a gift to your grandchild. The most significant amount you can give your grandchild is $15K a year. Any amount over that $15K, you’ll have to pay a gift tax.

Create a Trust Fund

You might fear that dumping money onto your 18-year-old grandchild is irresponsible, and you may be right. If you have a substantial amount of wealth to leave them, the best option is to create a Trust Fund. The trust will have specific provisions of how your grandchild can use the money and when they can access it.

Then, select a trustee, such as yourself or your children. The trustee oversees the use of the money until your grandchild is at certain milestones in their life. Then, the trustee can release the money when your grandchild is responsible enough to handle the money by themselves.

The good news is that trust funds are essentially tax-free until you start doing business with that money.

Bottom Line for investment gifts for grandchildren

It’s often said that grandchildren are like flowers, you’ll never get tired of watching them grow. With the tips above, you should have some guidance on structuring the right investment gifts for your grandchildren.

These are significant decisions, and you only need to give your grandchildren what you think is valuable. As you explore these options, consult a financial expert, a lawyer, and even the kid’s parents so that all concerned parties are on the same page.

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