A $124 trillion transfer of wealth is coming before 2048, including $105 trillion to heirs and $18 trillion to charity, according to a Cerulli Associates projection.
That includes nearly $100 trillion that will be transferred from baby boomers and older generations, representing 81% of all transfers.
As grandparents, you may have the means and desire to help your grandchildren establish a solid foundation for their financial future now, while you enjoy the benefits of giving.
Gifting to your grandchildren can help position them for financial success. It simultaneously reduces the size of your estate and taxes at your time of death. This allows you to pass down your values — such as generosity — while you are alive.
There are many factors to consider before implementing a gifting strategy, such as:
Age: How old are your grandchildren? Consider the age at which you want them to be able to use the money you plan to give. Whether your grandchildren are 18 or younger affects the suitability of the gift.
Financial responsibility: How financially responsible are your grandchildren? Do they, or will they, have the financial acumen to manage the money effectively? What strategies can you implement so the money is appropriately managed for their future?
Disabilities: If a grandchild has disabilities, carefully consider how gifting may affect them. Meet with an attorney who specializes in disability planning. You do not want your gifting to negatively impact your grandchild’s ability to obtain government benefits.
In 2025, the IRS increased the annual gift tax exclusion to $19,000. This amount can be given to any person, including grandchildren, without the need for any gift tax reporting. A married couple can double that amount and give up to $38,000 to their children, grandchildren, or anyone else they deem appropriate without any tax consequences.
Any amount beyond these annual gift limits will involve using part of your lifetime federal gift tax exclusion, which is $13.99 million per person in 2025. If you do exceed the annual exclusion amount, you’ll need to file a gift tax return and track the amounts given each year.
529 plans
Contributing to a 529 plan is another way for grandparents to save for their grandchildren’s college expenses and build an educational legacy.
The assets in a 529 plan grow tax deferred and, when withdrawn from the plan, are tax free if used for qualified college expenses. With the power of compounding interest, if an account is funded when a grandchild is young, a substantial college fund could be available by the time they enter college. For example, if you fund a 529 plan with $5,000 earning 6% annually and contribute an additional $100 monthly, the balance in eight years would be $20,559. In 18 years, it would be $53,584.
Another strategy for those who want to contribute more than the annual limit of $19,000 to a 529 plan is known as superfunding. Through superfunding, you can frontload a 529 plan by making up to five years’ worth of contributions at one time — treating it as though it were spread over five years.
This means you could put $95,000 into a 529 account for one beneficiary today. Married couples can contribute up to $95,000 annually, and $190,000 would be eligible for the gift-tax exclusion.
Consider the case of two grandparents with 10 grandchildren. Superfunding their 529 plan accounts with a maximum lump-sum contribution would reduce their estate by $1.9 million in a single day without using any of their lifetime exemptions.
As of the 2024-2025 academic year, new Free Application for Federal Student Aid (FAFSA) rules ensure that grandparent-owned 529 plans no longer affect a grandchild’s financial aid eligibility.
Another benefit of the 529 plan is that, after college, if there are funds available in the plan, the grandchild can convert up to $35,000 to a Roth IRA for their future retirement. The 529 plan must be at least 15 years old, and rollover contributions are subject to the Roth IRA annual contribution limits.
Saving with IRAs or Roth IRAs
If your grandchild has a job and is earning income that is reported to the IRS, you can contribute directly to a custodial traditional IRA in their name. They must earn income equal to or greater than the contribution amount.
In 2025, the IRA contribution limit for an individual under age 50 is $7,000. These funds will grow tax free until the IRS mandates the required minimum distribution (RMD), which is age 75 for people born in 1965 or later. If needed, the funds can be withdrawn before age 75, without penalty, starting at age 59½.
Like a traditional IRA, a custodial Roth IRA is opened and managed by adults for a child. The child gets full control of the account once they reach their state’s age of majority.
Also like a traditional IRA, you can only contribute to it if your child earns income and reports it on their tax return. If so, you’ll be able to invest up to the annual contribution limit ($7,000) of that earned income each year into their Roth IRA.
All money in the account grows tax free and can be withdrawn tax free at age 59½. Contributions can be withdrawn without penalty at any time. However, gains can only be withdrawn for certain circumstances or in retirement. Otherwise, they’ll be subject to a 10 percent penalty plus any applicable income taxes.
It’s hard to justify choosing a traditional IRA over a Roth IRA for children, because traditional IRAs are designed for people in higher tax brackets. They offer advantageous deductions upfront to help lower their current taxable income. This situation typically doesn’t apply to kids, who usually only earn small amounts of money from their jobs.
Custodial accounts
A custodial account, created with the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), is established by an adult to benefit a minor.
You can open a custodial account for a child at most financial institutions, including banks, credit unions, brokerage firms, or mutual fund companies. State laws do apply, so age limits for custodial accounts can range from 18 to 21, depending on the state where the account holder resides.
A custodial brokerage account allows a grandparent or other adult to give a financial gift to a minor to help teach them about investing. Grandparents manage the account, then turn it over to the child when they reach age 18.
Because the account holder is legally considered a minor, the child needs the custodian’s approval to buy or sell investment-related securities. The custodian is any adult with the fiduciary responsibility to manage the account.
For tax year 2025, a child under the age of 19 (or a full-time college student under the age of 24) is considered a dependent at the end of year. The first $1,350 of a child’s unearned income is tax free. The next $1,350 is taxed at the child’s rate. Amounts over the $2,700 threshold are taxed at the parent’s tax rate.
The minor’s Social Security number is used for tax-reporting purposes on UTMA accounts. Because the minor owns the assets in an UTMA account, this may have a negative impact when the minor applies for financial aid or scholarships.
When considering financial gifts for your grandchildren, do your due diligence to understand how each strategy can benefit them while aligning with your values and financial goals. Gifting to your grandchildren gives you the opportunity to begin the money conversation with them, while establishing their foundation for a solid financial future. If you have the means, gifting can be a powerful way to express your love, while creating a sound financial legacy that could benefit your family for generations to come.
Teri Parker is a certified financial planner and vice president for the Riverside office of CAPTRUST Financial Advisors. She has practiced financial planning and investment management since 2000. Contact her via email at Teri.parker@captrust.com.