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How to Invest for Grandchildren

Original post by Alexis Lawrence of Demand Media

The right investments can help establish a grandchild's financial future.

There are a few different options when it comes to helping your grandchildren ensure their financial futures. If you begin investing for grandchildren early in their lives, you have many years to save before they reach adulthood. Although there is no one right way to invest for grandchildren, you can narrow down your investment choices so that you make the best investment decision for them.

Step 1

Invest in a grandchild’s education with a 529 plan, also known as a college savings plan. Open a 529 plan through a financial institution in each of your grandchildren’s names, and add regular contributions. Depending upon the available plans in your state, the plan can be an open savings account, from which you can withdraw funds at any time, or a credit-buying plan that purchases tuition and housing credits at state-funded universities.

Step 2

Try to grow the original amount of your investment throughout your grandchildren’s youth by opening custodial investment accounts. With a custodial account, you control the investment of the funds in the account, buying and selling stocks with the contributions, until the child reaches a specified age. At this point, your grandchild takes control of the account, including all contributions and earnings.

Step 3

Help grandchildren start their own Roth IRAs once they begin working. As long as your grandchild earns income, even as a teenager working in a fast food restaurant, he can open a Roth IRA through a financial institution. Once the account has been opened, you may contribute to the account, helping your grandchild meet the $5,000 per year maximum contributions.

Step 4

Make your grandchildren heirs to your estate or to your life insurance. If you want to ensure your grandchildren’s financial future after you are gone, leaving them a portion of your estate or life insurance provides a way. While life insurance pays out in a lump sum, a trust allows you to determine the distribution schedule, which means you can provide for your grandchildren for many years after your death.

                   

Tips & Warnings

  • A Roth IRA provides a good way of saving for any situation, such as college, the purchase of a car or a summer in Europe. Since the contributions to the Roth IRA are made post-tax, your grandchild can withdraw the contributions at any time without penalty.

References

About the Author

Alexis Lawrence is a freelance writer, filmmaker and photographer with extensive experience in digital video, book publishing and graphic design. An avid traveler, Lawrence has visited at least 10 cities on each inhabitable continent. She has attended several universities and holds a Bachelor of Science in English.

Photo Credits

  • PhotoObjects.net/PhotoObjects.net/Getty Images

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