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Giving Love and Money to the Grandkids

Grandparents often want to do whatever they can for their grandkids, from helping with their homework to paying for college.

According to AARP, they spend on average $2,562 annually on their grandchildren – here's how you, and they, can make the most out of that financial support.

529 COLLEGE SAVINGS PLAN Contributions to 529 accounts grow on a tax-deferred basis, and withdrawals are tax-free if used for qualified higher education expenses such as tuition and room and board.
BONUS: Account balances can be transferred to other students within the family, so if one grandchild ends up not needing the full amount, you can move the balance to another one.

CUSTODIAL INVESTMENT ACCOUNTS Similar to a trust, an adult custodian oversees these investment accounts until the child turns 18 or 21, depending on the state. At that point, they get full control of the funds.
BONUS: Even though the assets are out of your hands as soon as you make your contribution, you can deposit up to $15,000 a year without incurring federal gift tax.

CASH-VALUE LIFE INSURANCE Beyond providing a death benefit, a cash-value life insurance policy allows the child to withdraw funds tax-free for any reason, including for college (a nice extra: the policy's value is not included in financial aid calculations). If the loan isn't paid back, the death benefit is simply reduced.
BONUS: As the owner, you can determine the most appropriate time to transfer full control to your grandchild.

Financial topics such as these can be difficult for families to discuss for several reasons. A financial advisor can clear the path for these awkward conversations, but only if everyone is invited to participate. If you'd like to schedule a meeting for your own family, contact your Baird advisor.

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