Many grandparents want their grandchildren to save money and get a good financial start, but are unsure of how to do it. Here are some strategies to help them out:
Start savings accounts at a bank or credit union
Check your bank or credit union for special accounts and programs they may have for those under 18 years of age. Some institutions waive fees and minimum requirements for young savings account holders until they reach adulthood.
At Directions Credit Union, MyLife savings accounts can be started by parents or grandparents if they have the child’s name, date of birth and Social Security number, according to Alyson Timmons, of Community Outreach and Financial Education for Directions. Checking programs are available for those aged 13 and older, and can be monitored by an adult.
PNC Bank offers “custodial accounts” for those under 18 years, started by parents or other adult relatives that are without fees until the child reaches 18. Joint checking accounts are available for ages 14 and older.
Start or contribute to education savings programs
While the focus on many school savings programs has been college and vocational school, there are ways to help grandparents finance K-12 education as well. The best known program is the 529 program available in all states, known in Ohio as College Advantage (collegeadvantage.com).
An account can be started by a parent, guardian or other relative for a child, and the money will be invested in one of the approved financial products in that state program and will grow tax-free. Money can be withdrawn tax free from it to pay for K-12 tuition, or any approved expenses for a post secondary school. According to Toledo-based tax advisor Robert Hodge, stock investments can go sour in a 529 program and result in a loss of money, but he recommends an indexed fund to reduce the risk.
While Ohio no longer has a prepaid tuition plan, Michigan still has one, the Michigan Education Trust, which allows you to buy credit for Michigan colleges at current prices.
Linda Fayerweather, MBA and Business Specialist with the Toledo Lucas County Public Library, suggests matching the earnings of youngsters as an incentive. She has paid her own grandchildren for chores, and matched earnings with them in a special account. Also, you can simply pay some college expenses directly (what Fayerweather calls the “grandma and grandpa scholarship”), which will not harm their eligibility for scholastic grants.
Create funds for disabled grandchildren
Grandparents can also create or contribute to accounts for children whose disabilities will cause them to use SSI and Medicaid throughout their lives. A special needs trust would make funds available that a trustee could use for some of the child’s needs without losing eligibility to receive benefits from those programs. It can be set up or contributed to by grandparents and must be managed by a trustee, who can purchase items and services for the beneficiary not covered by SSI or Medicaid.
According to Special Needs Trusts: Protect Your Children’s Financial Future by Nolo Press, a producer of do-it-yourself legal books, there may be tax consequences to starting up a special needs trust in your lifetime. The authors suggest that unless there are extraordinary needs, it way be wiser to set up a special needs trust through your will. Find out more, including a list of legal experts in the field, at specialneedsanswers.com.