Ask Terry Questions Where to invest money for young children where it will be safe.

Where to invest money for young children where it will be safe.

By Terry Savage on November 13, 2022 | College Savings / Student Loans

Dear Terry: My great grandsons are 5 and 8. I inherited a sizable amount of money recently and would like to put some away for them to get at a later date. I want to avoid any tax consequences for doing this. I know right now the largest gift can be $15K per person per year. I’d appreciate your expert advice. I love your tv appearances and your column that always has excellent information and advice. Thank you!

Terry Says

I have a great idea for you. You are (almost) correct that you can gift a set amount of money each year — but that amount has risen to $16,000 a year.
AND, there is one exception to that limitation. You can give 5 years of the $16,000 (a total of $80,000) IF you put it in a 529 College Savings Account. You could do that for each of them if you want to be very generous!
The money in these accounts grows tax-free for use in any college in any state. In effect, you would be giving them a huge start on a college education. And with more than 10 years to let the money grow, this would have real impact.
Read this article for how 529 plans work https://www.terrysavage.com/best-gift-529-college-savings-plan/

As you’ll see, money in a 529 plan will not impact financial aid as severely as money you might gift in a custodial account for minors. So please take my suggestion. If you live in Illinois, you even get a tax deduction on state income taxes for your contribution of up to $10,000. The Illinois plan (I assume you are an Illinois reader is www.BrightStart.com.) But you can join any state’s plan. Find the best-performing ones at SavingforCollege.com.

And I want to correct one other misconception. There is no tax on gifting — unless (under current law) at your death the combination of your estate and previous gifts exceeds well over $12 million! But when you start gifting more than the allowable $16,000 per person, per year, you should start keeping records for your estate plan.

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