Helping Grandchildren Retire

Politicians agree it’s important to “save Social Security,” even if they don’t agree on how to do so.  Many current retirees worry that their grandchildren will bear an increasingly heavier burden of keeping Social Security afloat, while receiving reduced benefits in the future.

Grandparents can help provide retirement security for grandchildren.  For instance, a married couple can give up to $30,000 to a grandchild, free of gift tax, each year.  However, current gifts don’t guarantee that the money will be saved or invested for retirement.

A better option might be for the grandparents to contribute to the grandchild’s IRA.  If the grandchild has earned income, the grandparents could offer to “replace” up to $6,000 annually to fund an IRA.

With either a traditional or a Roth IRA, the grandchild could withdraw up to $10,000 for the purchase of a first home with no early withdrawal penalty. (Income tax will be owed on funds withdrawn from a traditional IRA.)

It’s unlikely that the grandparents will be alive when a grandchild retires, but there’s great satisfaction in knowing the younger generation will benefit from their grandparents' foresight.

Another option:  Grandparents can make a gift to charity and help with a grandchild’s retirement.  Gifts can be structured to begin paying income to the grandchild at some future date, with eventual benefit for charity.