Retirement Planning, Elder Law, and Senior Finance

6/7/2023 | By David Rodeck

If you’re like many grandparents, you’d like to give to your grandkids in order to give them a financial leg up.

Transferring property while you’re still alive lets you enjoy seeing your grandchildren benefit from your gift. It could also help from a tax-planning perspective. You can give each grandchild $17,000 a year without it counting against the lifetime limit of the estate tax credit. Right now, that’s $12.92 million in property over your lifetime as gifts or inheritances without owing federal taxes.

Still, even without the tax concerns, giving thousands of dollars to a young family member is not a decision you should rush. Here are some different ways you can give to your grandkids that help them make the most of your generosity.

3 ways to give to your grandkids

529 plans

These state-sponsored investment accounts are used to save for college. While there is no federal tax deduction for adding money to a 529 plan, most states offer income tax deductions if you’re a resident and invest in the plan.

Plans offer a variety of investment options, and your gains are sheltered from taxes as long as the money stays in the plan. When your grandchild attends college, he or she can withdraw the money completely tax-free to pay for education expenses.

If the grandchild doesn’t spend all the money or doesn’t go to college, starting in 2024 he or she can convert up to $35,000 to a Roth IRA for retirement. Alternatively, you can use the account to pay for another family member’s education. Withdraw the money for non-qualified expenses and you will owe income tax and a 10% penalty on your investment earnings.

grandparents with grandchild in park - how to give to your grandkids

Custodial investment accounts

Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are custodial investment accounts. Your grandchild is the owner, but you control and manage the investments on the child’s behalf until he or she becomes an adult, between the ages of 18 and 21, depending on the state.

With an UGMA account, you can pick whatever investment options are available with your broker. UTMA accounts also accept real estate and other property. You can transfer assets you already own to these accounts, but transfers are irrevocable.

Custodial investment accounts do not defer taxation but do receive favorable tax treatment. Because your grandchild owns these accounts, they could hurt eligibility for college financial aid. Also, your grandchildren gain full control over the assets once they reach the age of maturity.

Retirement savings

If your grandchildren have jobs and are earning income that they are reporting to the IRS, you can help set up and contribute to their Roth IRA.

“You can contribute up to their earned income for the year or the IRA limit, whichever is lower,” says Angie O’Leary, with RBC Wealth Management-U.S. In 2023, young workers can sock away up to $6,500 in a Roth. You fund the Roth with after-tax dollars. Once your grandchildren retire, their withdrawals, including decades of investment growth, will be tax-free.

David Rodeck is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit

©2023 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

Read other great articles about giving on Seniors Guide: How to Help Your Children Buy a Home

David Rodeck

David Rodeck is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit