Custodial Roth IRA
While minors can not manage their own IRA’s, custodial Roth IRAs are a great way to encourage your grandchildren to form good money habits and prepare for their futures. As the grandchildren earn money from their allowances, mowing lawns and birthdays, they will likely want to spend that cash for some instant gratification.
To demonstrate how invested money grows over time, you can agree to make matching contributions to their custodial Roth IRA, Certified Financial Planner Rose Swanger told the AARP.
“Hopefully, they will become more motivated once they see the results.” He said.
Until the child is 18 years old, you will maintain full control of the IRA’s assets and investment decisions. As adults, they can assume control of the funds and begin making withdrawals without suffering penalties for qualified expenses.
529 education savings plan
College is expensive. And many students ultimately must turn to loans that can take several years to pay off. But there’s a better way.
By starting a 529 education savings plan for your grandchild, you can ensure they have the money they need to succeed in the classroom — and after graduation. You can give up to $75,000 per year ($150,000 for couples) and lower your own taxable income (contributions are considered gifts on your taxes).
Your grandchild can use the funds — tax free — to pay for tuition, room and board, books and other educational expenses, including apprenticeships.
Series 1 savings bonds
For a rock solid investment that ensures money will be available for your progeny in the coming years, consider investing in savings bonds, Certified Financial Planner John Scherer told the AARP. Backed by the U.S. government, these bonds can be purchased straight from Treasury Direct.
“This is a safe investment that’s backed by the U.S. government, with a guaranteed rate and an inflation component. If used for college, the gains can be tax-free.” He said.
The initial interest rate on Series I savings bonds is 9.62% through Oct. 2022.