ÔÇ°Open a 529 plan. Use the money you're already gifting to fund a 529 plan to help your grandchildren pay for college. These plans have generous contribution guidelines, and withdrawals are tax-free, provided the money is used for qualified expenses. There may be state tax incentives available to in-state residents who invest in their home state's 529 plan. A 529 plan also offers you a degree of flexibility; If the beneficiary grandchild decides to forgo college, you can transfer the unused funds to another grandchild, tax- and penalty-free. However, withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes, plus a 10 percent penalty.
ÔÇ°Contribute to a Roth Individual Retirement Account. The Roth IRA is a powerful retirement savings vehicle. You can fund your IRA with virtually any type of investment, such as stocks, bonds and government securities, and your earnings grow tax-free, provided you don't take withdrawals until you're at least 59¬ and you've held your account at least five years.
Your grandchildren may appreciate your generosity, but they'll also no doubt want you to enjoy a comfortable retirement. As always, you need to do what makes sense for your situation. You may find there are ways to help both your grandchildren and yourself.
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Edward Jones Financial Adviser Michael Quinn submitted this column. Quinn's Edward Jones office is at 25 Railroad Square, Suite 201, Haverhill. He can be reached at 978-372-8453.