It’s one of life’s great pleasures: Seeing that big smile when you’ve given the perfect gift to a grandchild. Of course, spoiling the grandkids rotten is one the main benefits of being a grandparent (that and hearing a little voice call you “ump-pa” or “na-na”). But things can get more complicated when you’re giving money to grandchildren instead of, say, a model train set.

Although financial gifts can be a great way to provide for your grandchild’s future, in some cases, your generosity could have unintended tax consequences — or create friction with the child’s parents. Here’s what you should know before you give.


The element of surprise is important when you want to see the delight on someone’s face. But it may not be a good idea when you’re giving a financial gift to a grandchild. That’s because unless you ask, you don’t know how your child (and more importantly his or her spouse) will feel about such a gift. They may feel strongly about how much money they want their kids to have and when. It’s also possible they have saved for certain expenses but would want help with another.


Starting in 2018, you and your spouse can each give up to $15,000 per person (up from $14,000 in 2017) to as many people as you’d like without paying any gift tax, according to IRS guidelines on gift exclusions. If you want to give more, you can, but that amount would cut into the $5.6 million ($11.2 million per couple) you’re allowed to give away without a paying gift or estate taxes during your lifetime or at death. You’ll also have to file a gift tax return for the year in which you make the gift.

The element of surprise is important when you want to see the delight on someone’s face. But it may not be a good idea when you’re giving a gift to a grandchild.


You can always give cash. But if you want growth potential or for the gift to be used for a specific purpose, you may want to open a specific account.

  • UTMA or UGMA Account. These accounts are opened in the name of the child, but an adult (likely you or the child’s parents) keeps control of the account until the child reaches a certain age: between 18 and 21, depending on what state they’re in. The money in these accounts can be used on anything for the child.
  • 529 Plan. If your goal is to put away money for college, a 529 account a great tax-advantaged way to do it. Just be careful about who owns the account as it can affects who can make decisions on the account, such as disbursements and changing the beneficiary.
  • Individual Retirement Account. IRAs are a great way to help your grandchild get a jump on retirement savings. This includes both traditional and Roth IRAs. To contribute to an IRA, your grandchild must have earned money during the year. You can contribute as much as they earned, up to $5,500 in 2018.
  • Life Insurance. A whole life insurance policy on a child can provide protection now and also in case they develop a health condition that would make it hard for them to get insurance in the future when there’s a greater need for it. The policy will also build cash value, which is money the policy owner could access for any reason.

No matter how you choose to give, a financial gift for a grandchild, especially when they’re young, can go a long way to setting them up for a solid financial future.

This publication is not intended as legal or tax advice. Northwestern Mutual or its Financial Representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.

Recommended Reading