529 Education Savings Plans are the best option, allowing tax-free growth and withdrawals for education, with many states offering tax deductions for contributions. Other options include Custodial Accounts (UTMA/UGMA) (no contribution limits, but no tax deduction) or Custodial Roth IRAs for working grandchildren. A new Trump Savings Account for Children is also coming in 2026.
Custodial accounts (UGMA/UTMA)
Along with cash deposits, a custodial account can hold everything from stocks and bonds to annuities and real estate. Once the grandchild reaches the age of majority, they'll take full ownership of the money and/or assets within the account.
Perhaps the simplest way to leave an inheritance to your grandchildren is to name them as beneficiaries in your will or trust to receive a specific amount of money or a percentage of your total accounts and property.
As most people are saying, 529 is the best option. It can provide for college or trade school, and then whatever she doesn't use can be converted to a retirement account (relatively new law allowing this). It gives her medium and long term benefits that the parents can't touch.
It means that if you give a gift over your annual exemption amount and then live for at least seven years after making it, the gift won't be counted as part of your estate for inheritance tax purposes. However, if you die within seven years of gifting money, the value is added back to your estate and may be taxed.
As of 2024, this exclusion is set at $18,000 per individual. This means that you can give up to $18,000 in cash or property to your son, daughter, or granddaughter individually without concern for tax implications. If you and your spouse make a joint gift, the exclusion doubles to $36,000.
Technically speaking, you can give any amount of money you wish as a gift to one or more of your children or any other member of family. Some parents also choose to buy property and put it into their child's / children's name(s).
Greater Bank is one example of a provider that allows grandparents to open an account on behalf of their grandchildren, with its Life Saver account. The bank says that this account can help children start good habits early, and see the rewards of savings as their balance grows each month with interest.
State-administered 529 education savings plans are the go-to choice for many families, and their generous tax benefits are a big reason why. The money your grandchild withdraws for qualified education expenses — including private K-12 education expenses — is completely tax-free.
A 529 plan is generally better for long-term college savings due to significant tax advantages and potential for higher investment growth, while a High-Yield Savings Account (HYSA) offers liquidity and safety for shorter-term goals, as its variable rates can fluctuate but offer easy access without penalties, making it better for emergencies or near-term education expenses where penalties and taxes on earnings might apply with a 529. Choose a 529 for maximizing college funds and an HYSA for flexibility and safety.
There are several ways to transfer property to a child tax-free, including leaving it in a will, gifting it using lifetime and annual exclusions, selling it, or placing it in an irrevocable trust.
A trust can protect your assets by ensuring they're distributed according to your wishes. Other advantages a trust offers include avoiding the probate process and potential tax benefits. A revocable trust offers flexibility in changing the terms of the trust agreement by executing an amendment to the document.
The earlier you start saving, the better. In many cases, you can open a junior savings account as soon as a child is born. But if your grandchild is older, it's not too late to get ahead with a Junior Pension, First Saver savings account or Premium Bonds.
Where to store savings for grandchildren
“Gifts” can be made in cash or other assets – securities, closely held business interests, real estate, artworks, collectibles or any other type of property. So long as the total market value of your gifts does not exceed $19,000 per recipient in 2026, the transfers are entirely gift tax-free.
For newborns and those under 18: If you're the parent or guardian of an eligible child, you can set up and contribute to the child's Trump Account. Your child's grandparents and other family members may also contribute to your child's account.
Custodial accounts are another type of account appropriate for grandparents to open for their grandchildren. These types of accounts are managed by an adult family member on behalf of a minor (someone under the age of 18 to 21, depending on state law).
Grandparents opening a savings account for a child
It has to be in the child's name and they must show documentation such as the child's birth certificate. A grandparent needs to have parental responsibility to open a Junior Cash ISA.
The 7 year rule
No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.
How much can you give tax-free in 2025? Each year, the IRS adjusts the annual gift tax exclusion for inflation. In 2025, that exclusion increases to $19,000 per recipient, up from $18,000 in 2024. You can gift this amount to as many recipients as you like with no impact on your lifetime estate and gift tax exemption.