How Your Financial Experiences Can Benefit Your Children & Grandchildren
Every parent and grandparent wants the best for their children and grandchildren . The hope is to pass along the wisdom of their experience , so that their offspring avoid pitfalls and benefit from better choices . Making good financial choices can have particularly significant benefits for children and grandchildren . In our capitalist society , dollars can open doors and provide opportunities . Saving early in the correct savings vehicles can allow you and your children ( and their children !) to reap the rewards of the time value of money and compounding interest . So , the question to ask your kids is : Would you like a dollar now , or $ 1 million later ?
Ways to Save
There are a number of savings vehicles available , and some offer significant tax benefits . 529 college plans , custodial accounts , and Coverdell Education Savings Accounts are some of the most popular options .
A Question for the Ages
How Your Financial Experiences Can Benefit Your Children & Grandchildren
By Sue Bogoevska
Gifting : Anyone can gift up to $ 14,000 per person per year with no gift tax . Rather than giving an outright gift , though , consider savings vehicles that offer additional benefits .
529 college plans : instead of simply providing a monetary gift , consider putting the money into a 529 college savings account . You can deposit up to five years ’ worth of gifting in advance , for a total of $ 70,000 for 2016 . 529 plans have a number of tax benefits , including :
• State specific plans , which may offer an income tax deduction or credit , in addition to a variety of investment options .
• The monies grow tax-free if they are used for college education expenses .
• Account balance may be transferred to an eligible family member without taxation .
It is important to keep in mind that a 529 account is established individually for each minor , although multiple donors can contribute to it . Additionally , having a 529 account may affect financial aid eligibility for the student . Custodial accounts : Custodial accounts can be brokerage or bank savings accounts , and , like 529s , there can only be one minor per account . Custodial accounts are characterized by the following :
• Up to age 14 , dividends and capital gains are taxed at the minor ’ s tax rate . Then they are taxed at the parents ’ tax rate .
• The custodian controls the account for withdrawals & transactions .
• Once minor reaches age of majority ( 18 or 21 ), the account is owned by the minor .
• There are no limits on contributions .
• Investment choices are whatever is available through the firm .
Coverdell Education Savings Account : These education savings accounts can be used for elementary and secondary school , in addition to college .
• These accounts have a $ 2,000 annual contribution limit .
• There is an income restriction on donors to a Coverdell Education Savings Account ( must be under $ 110k modified gross adjusted income for an individual , $ 220k for joint filers to be eligible )
• Contributions are only permitted until the minor turns 18 .
20 DALLAS COUNTY Living Well Magazine | MAY / JUNE 2016