What You Can Do to Help Your Children and/or Grandchildren’s Financial Future

Giving our kids/grandkids tidbits of financial wisdom when the opportunity arises and stuffing money in a card on birthdays and Christmas are great gestures. However, there are many tools available today that allow you to take your support to the next level.

529 Plans

A widely touted college savings vehicle for children and grandchildren due to their many benefits. Earnings inside a 529 plan grow tax-free and can be withdrawn tax-free provided they are used for qualified education expenses. Although they are not tax-deductible for federal returns, they are tax-deductible for many state returns. Like many investments, compounding plays a key role in growing these accounts. The earlier contributions start being made, the longer the funds have to grow.

Keep in mind that gift tax rules apply to 529 plans. In 2021, gifts totaling up to $15,000 per individual will qualify for the annual gift tax exclusion. If you and your spouse have three grandchildren (or children) you can jointly give $90,000 without gift-tax consequences, as each child can receive $15,000 in gifts from you and $15,000 in gifts from your spouse. It is important to note that the annual gift tax exclusion amount also includes non-529 gifts so be sure to include any cash or property gifts in your total.

If your total gifts to an individual will be more than $15,000 this year, the excess amount will count against your lifetime estate and gift tax exemption and will have to be reported when you file your taxes. In 2021 individuals can gift up to $11.58 million without having to pay federal estate or gift tax.

One strategy that many parents and grandparents like is the 5-year election strategy. Individuals may contribute as much as $75,000 to a 529 plan in 2021 if they treat the contribution as if it were spread over a 5-year period. The 5-year election must be reported on Form 709 for each of the five years. They’re able to shelter a large amount of assets from estate taxes, while retaining control of the funds in the 529 account.

529s are also revered for their flexibility. If your child decides not to attend college, the plan can be transferred to another child or family member without any tax penalty. If you transfer it to a non-family member, it is treated as a non-qualified withdrawal and both the 10% penalty and ordinary income tax applies.

Also, important to note, if you are contributing to your grandchild’s 529 plan, it may impact your Medicaid eligibility if counted as an asset. It could also affect your grandchild’s financial aid eligibility since withdrawn money is seen as student income. To avoid this, you can transfer ownership to the child’s parents, or you can wait until January of their sophomore year to begin withdrawing the funds. The information used for financial aid calculations is based on tax information from two years prior, by their sophomore year, the withdrawals won’t affect the Free Application for Federal Student Aid (FAFSA).

Roth IRAs

Children have plenty of time to allow their contributions to grow tax-free. Contributions to Roth IRAs can be withdrawn tax and penalty-free at any time. These two points alone make Roth IRAs an attractive savings tool for kids. This investment vehicle is best suited for those with a long-time horizon and low tax rate, which is why it can be ideal for children.

There is no age restriction, but the child must have earned income to contribute to a Roth IRA. For example, an 11-year-old who mows lawns in the summer could contribute to a Roth IRA. A parent or adult would need to open the account. Annual contributions are limited to the lesser of the child’s earned income or the contribution maximum of $6,000 in 2021.

Roth IRAs differ from 529 plans in that the money contributed to the account does NOT have to be used for college. It can be used for other purposes such as buying a car or purchasing a home. Money can be withdrawn at any time, but distributions of investment earnings may be taxed as income, penalized with a 10% early distribution tax or both.

Consider a UTMA

Universal Transfers to Minors Act (UTMA) accounts are used to hold and protect assets for minors until they come of age (based on state rules). Funds can be used for college or non-education related expenses. You can give $15,000 annually without incurring federal gift tax. Since the assets belong to the minor, a certain amount of investment income goes untaxed while an equal amount is taxed at the child’s tax rate. These assets are considered the child’s asset and therefore are counted against financial aid.


Did you know you can give shares of stocks to a child or grandchild? You can choose stocks that they are familiar with like Nike, Under Armour, Disney, etc. You can gift them by contacting your institution and filling out the proper forms to re-title some of the holdings in the name of the child. You can also set up a direct stock purchase plan in their name by filling out a form and mailing in a check. They will receive a statement showing the number of shares they own. To buy more they would mail in additional checks or have automatic withdrawals set up from their bank account.

It is important to note that giving shares of stock to others has become a cumbersome practice in recent years.

Naming Them as an Authorized User on Your Credit Card

Adding a child as an authorized user can help build their credit score so they are better positioned when the time comes for a car or home purchase. It can also enable them to receive offers for credit cards with rewards perks when they are 18. Even though the child isn’t the one paying the bill, the timely payments will still be reflected on the authorized user’s credit score.

Offer Them “Work for Pay” Jobs

Give your kids or grandkids odd jobs to do around your home so they can earn extra money to reach their goal.  They can sweep sidewalks, walk the dog, wash the car, change light bulbs, water plants, weed gardens, help to clean out the attic, wash the dishes, etc. This teaches them the value of hard work and will feed them with a sense of accomplishment once they’ve earned their reward.

Set Them Up with a Real Debit Card and Investing Tool

Greenlight is a platform that empowers kids to earn, spend and invest responsibly. Chores can be set up within the application and allowances can be auto funded or manually paid out once the chores have been completed. Kids can decide how much they want to put into each category (spending, saving, charity, investing). Kids receive a real debit card that can be used almost anywhere. You can set it up to get an alert every time the card has been used, parents can set restrictions for where kids can spend their money, and kids can create their own personal savings goals and monitor their progress. Teens with jobs can even have their money direct deposited into their Greenlight account.

There are many ways to help enrich your child or grandchild’s financial future. Don’t forget to give them the most important gift of all, YOUR TIME.

Give us a call today at (410) 840-9200 or visit us at


Kiplinger. (February 2021). How Grandparents Can Help Their Kids to Raise Financially Responsible Grandkids.

Forbes. (May 2021). 5 Ways to Teach Kids the Financial Values They’ll Need.

NerdWallet. (June 2021). Why Your Kid Needs a Roth IRA. (July 2021). What is a 529 plan?

Main Street Advisors, LLC. September 2021. Main Street Advisors, Inc. is a Registered Investment Advisor. The articles and opinions expressed in this material were gathered from a variety of sources, but are reviewed by Main Street Advisors, LLC, prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of September 2021 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual situation. Always contact your financial/investment professional before making any financial decisions. Main Street Advisors, LLC is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Our Affiliations

We are proud to be affiliated with the following organizations.