As a grandparent, you may want to help your grandchildren out financially without having to worry about gift taxes. Luckily, you'll find that there are many ways to give to your children that will not incur taxes, so that your grandchildren can enjoy the gift to its fullest. Savings plans, gift taxes and medical plans make it easy for you to give generously without the encumbrance of state or government taxes.
529 College Savings Plans
529 college savings plans are available in every state, according to the AARP. They allow a grandparent, or any person, to contribute money into a tax-free savings account that can be used for college education and its related expenses. You can contribute up to $2,000 per calendar year to the account, but the recipient can not use the money until he has turned 18, and then only for educational expenses.
529 Prepaid Tuition
If your grandchild already knows what college she wants to go to, you can prepay her tuition with a tax-free 529 plan that locks in the tuition amount, no matter how high the tuition costs rise over the course of the plan. That means that tuition rates could double, but because you've locked in the rate, your grandchild won't have to pay the increase. The tuition is already marked as paid.
Securities
Securities are also known as bonds or stocks. While your grandchild will need to pay taxes on the growth if the value of a stock has increased, you can give a stock or bond without growth without incurring any sort of taxes. Just make sure to issue the savings bond in your grandchild's name, says "Parenting Weekly" magazine, as transferring them between family members will incur federal taxes on the amount.
Medical Savings Accounts
An article in the New York Times recommends opening a medical savings account for a grown grandchild who may not have health insurance. Your grandchild can open a Health Savings Account through Medicare, and you can contribute up to $2,850 per year to it. The money contributed is tax free. You could also offer to pay for medical expenses or insurance as a way to help out without incurring taxes.
Cash Gifts
You can give your grandchildren cash only gifts and not incur taxes as long as the amount is under $11,000. Each grandparent can give that amount, and it can be offered to everyone in the family. That means you could legally and without taxes give a grandchild $22,000 per year tax free. Just be sure that it doesn't interfere with his ability to get student loans and grants later down the road by affecting his yearly income.
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