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Financial Tips as New Grandparents

Financial Tips as New Grandparents

26 May 2017,   By ,   0 Comments

If you’ve recently received the news that your child is expecting, and you’re going to be a grandparent, you’re probably feeling some sense of relief along with joy. You can have the fun of having a baby in the family, without losing a lot of sleep or spending a small fortune on diapers and baby formula.

Of course, your wallet may get a vigorous workout, anyway. Raising children is expensive, as we all know. If you want to help your grandkids, and by extension your children, you may want to consider making some of these financial moves for the present and the future.

[See: 7 Habits You Can Learn From Highly Successful Savers.]

Open up a 529 college savings plan. As you likely know from helping your own kids with their higher education, a 529 plan is a savings account designed to help people save for college (with tax breaks for both the contributor and recipient), and it’s often used by parents and grandparents.

If that’s the route you take, “the grandparent invests funds in the account for future growth, and all earnings and capital gains within the account are tax-free,” says Rebecca Pavese, a certified public accountant and financial planner with Palisades Hudson Financial Group’s Atlanta office. “Withdrawals from the account are not taxable as long as they are used to pay for qualified education expenses such as tuition, room and board, student activities fees and the like.”

And many states provide an income tax deduction for contributions made to 529 plans, Pavese says.As for starting a 529 plan, some accounts let consumers open one up for as little as a $25 initial offering. Others, however, might make you put in $250 to get it started, or even $1,000. You can find a lot of information at the U.S. News 529 Plan Finder site.

Update your will. Not everyone has a will, and not everyone needs one. But if you’ve amassed a healthy nest egg, and you’re leaving money to your kids, you may want to spread the wealth and add your grandchild, too. And if you have any special guidelines attached to the money (like not giving their inheritance to them until they hit a certain age), you’ll want to add that, says Roger Bell, president of a planning and investment advisory services company in Pulaski, Virginia.

“Appropriately defined provisions in their last wills and testaments are of utmost importance in reflecting their personal desires or dictates for their grandchildren,” Bell says. “These provisions provide a face, so to speak, of the grandparents when they are no longer physically present to provide insight and thoughtful guidance.”

You may also want to consider future grandchildren, Pavese says. But that’s a conversation you’ll want to have with a financial planner because estates can get tricky when you start trying to include imparting wealth to future grandchildren or great-grandchildren.

Generally speaking, she says, “Provisions in your will that apply to all your grandchildren are unlikely to extend to any grandchildren who may be born after your passing.”

Open up a new savings account. Mike Falco, a financial advisor, CPA and grandfather who owns Falco Wealth Management in Berwyn, Pennsylvania, says that you may want to open up a savings account, and then you can reserve the money you put into that account for your grandkid or future grandchildren.

If you make sure that you save at least half of the money in such an account for later in their lives, “this will allow you to help as the child gets older and gifts become more expensive,” Falco says.

For instance, even if you’re currently helping your children buy a crib or stroller, later on maybe you’ll want to chip in with paying for your grandchild’s braces or helping a grandkid buy a car.

Give time, not money. Sure, it would be great to buy baby furniture and fund your grandchildren’s college and make sure that they have everything they deserve. But if money is tight, Falco points out that time is money, and there are ample ways to help your grandkids and kids financially without putting your retirement money at risk.

“Offer to help in other ways,” he says. “Give the new parents a night out. Offer to baby-sit while mom and dad enjoy time together. Spend a Saturday or Sunday at their house. You can help with cleaning, laundry or watching the new baby while mom and dad get things done. There are ways to help and enjoy your new grandchild that don’t involve money.”

Still, if you’re going to start baby-sitting regularly and saving your children at least some of the costs of day care, it’s important to talk to your children about how much time you’re willing to give to babysitting your grandkids, says Michelle Hutchison, money expert and head of public relations for finder.com, a personal finance comparison website.

This is assuming you don’t want to feel as if in your retirement, or semi-retirement, you’re running a full-time, free day care service.

“In America, millions of grandparents put in hours of unpaid work, with some even cutting back on their day-job commitments to help care for their grandchildren,” Hutchison says. “While it’s normal to want to do as much as you can to help your children at the beginning of their parenthood journey, it’s also important to set boundaries.”

But, hey, if you ignore that advice and don’t set boundaries, there is a bright side. If you were going to open up a full-time, free day care service, who better to watch than your own grandchild?