If you found out your child is expecting a child of their own, congratulations! It’s exciting to become a grandparent.
While you likely won’t have to pay for every expense your future grandchild has, there are a number of ways you can help them financially. Here are eight money moves to consider when you become a grandparent.
1. Contribute to a 529 plan
529 plans are a great way to help your grandchild fund their college education. Grandparents can contribute money whenever they want — you can give a contribution as a gift. 529 plans help your grandchild pay for tuition, fees and books, among other educational expenses. You can learn more about how to open one here.
2. Update your will
Spread your wealth to your new grandchild by updating your will with their name. Your will can include any special guidelines for how your money can be passed along to them. For example, you may want your grandchild to turn a certain age before they can access the money or use it for something specific like college, a wedding or a down payment.
3. Open a new savings account
Open a new savings account to help your grandchild with save for their future financial goals. The money you put into it can be reserved for your grandchild and/or future grandchildren. A savings account ensures you’ll have money for your grandchild as they get older.
4. Contribute to a retirement plan
Once your grandchild starts working, you can help them contribute their earnings to a tax-advantaged retirement account, like a Roth IRA. A Roth IRA’s initial contributions will be taxed, but the investment returns won’t be. This can help your grandchild get a jumpstart on their retirement. Learn more about Roth IRAs.
5. Pay for education directly
While you can set up a 529 plan to help your grandchild with college, you can also contribute for their daycare, private school or college directly by writing a check. Paying directly for your grandchild’s education avoids gift taxes and your grandchild won’t potentially face a reduction in financial aid for college.
6. Buy life insurance
If your grandchild will be dependant on you financially, investing in life insurance is essential. Life insurance will ensure that they'll be covered in the event you pass away and are no longer able to provide for them. This investment can give your grandchild and their parents some much needed peace of mind.
Learn more about the cost of life insurance here — we can help you compare prices across different carriers.
7. Avoid overspending
It can be easy to spoil your grandchild. But buy them too much and you may put your retirement at risk. Take a close look at your budget to determine how much you can help them financially. If you have to use credit to make certain purchases for them, you’re likely overspending and need to cut back.
If you think you don’t have enough saved for retirement, here’s how to catch up.
8. Spend on experiences over things
While it’s tempting to buy your grandchild the latest and greatest toys, spending money on experiences over things is more beneficial. Your grandchildren likely never forget the memories made with you, as opposed to the latest toy.
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