Let them be kids, too

Valerie and her husband would like to give something to their grandchildren for Christmas other than the usual toys. Dave likes their idea of planning for the future, but he advises them to throw in a few toys, too.

QUESTION: Valerie and her husband have three young grandchildren. They’re in good shape financially and would like to give the grandkids something for their futures instead of the usual toys for Christmas. Dave guides them on the saving aspect, but advises them to include a few toys in the mix as well.

ANSWER: I would do both. I don’t think you want to be those grandparents who only hand their grandkids envelopes at Christmas. They need things to play with. They’re kids, and they should be allowed to act like kids and be happy at Christmas.

You could work with their parents to launch Educational Savings Accounts (ESAs) for them. This would get their college funds started, and it’s what’s we do. We use mutual funds in their ESAs, where each child is allowed to have up to $2,000 added in their name per year.

The beauty of the ESA with the mutual fund inside it is that it’s growing completely tax-free. You have to name a custodian of the account until the child turns 18, and that could be you guys or their parents. Make sure that together you don’t overfund the ESAs and cause yourselves tax problems.