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