National Grandparents Day is September 7, and it’s a good time to think about estate planning combined with ways to save on taxes. Whether a grandparent still works or is retired, the following financial practices communicate responsible financial stewardship for the next generation:
- Tax-free gift – The IRS allows a gift of up to $14,000 per grandchild per year, tax free. The amount reduces the giver’s tax burden without tax penalty to the receiver.
- Roth IRA – Setting up an IRA for future generations also helps with the giver’s current taxes, and the income tax is already paid for the next generation who benefits from the money.
- 529 plan – Contributing to a state 529 college savings plan will make rising costs of tuition much easier on the family. Grandparents can make five years’ worth of gifts at one time (up to $70,000). The grandparents control the plan, so that it can’t be tapped for other purposes. And, the money grows tax-free, with no tax on the withdrawals for qualified college education expenses.
- College tuition – Even without a 529 plan, a grandparent can write a check for tuition to a college or university without the amount counting against the $14,000 tax-free exemption.
- Trust – Setting up a trust doesn’t have to be a blank check for spending. Grandparents can specify installment amounts by date or birthday, or connect receipt of funds to desired milestones such as college graduation or graduate school.
- Foundation – The minimum for a family foundation is $1 million. By starting a foundation, the family is involved together in supporting causes that are important to family members. An alternative is to engage the family in making decisions about supporting nonprofit organizations.
For more information, please contact Jeff Bergman, CPA at Salmon Sims Thomas & Associates.