Three Strategies for Giving Financial Gifts to Kids

In the day, grandparents might have given their grandchildren small cash gifts for birthdays and holidays.

But now, with the cost of education rising and concern over job opportunities for recent graduates, grandparents may wish to pass on major assets to their children and grandchildren.

If so, you may want to consider one of the following three strategies: give cash or stock, or make a 529 plan contribution.

First, you can just give cash. In 2018, under the IRS’s annual gift-tax exclusion, each person may give up to $15,000 per individual with no tax consequences. So you and your spouse could transfer $30,000 to each of your children and grandchildren.

Or you can give a gift of stock. Say you decide to give your grandchild $10,000 worth of stock that you purchased for $5,000 more than a year ago.

The transfer isn’t taxed, and the stock can continue to (hopefully) appreciate. But if your grandchild ever needs the cash, he or she will have to pay taxes on the capital gain – the difference between what you paid for the stock ($5,000) and its current value.

Is this a negative? Not necessarily. It’s likely that your grandchild will be in a lower tax bracket and have a lower capital gains tax than you would.

Finally, if your grandchild is saving for college, you could make a 529 plan contribution. This education savings plan helps families save funds for their children’s (increasingly expensive) college costs. You can contribute up to $15,000 per year to each child or grandchild’s 529 plan. However, the law allows you to “front load” five years’ worth of contributions at once, which means you can contribute up to $75,000 in 2018.

Therefore, you and your spouse together can contribute up to $150,000 to a grandchild’s 529 plan – a sea change from the old days.