Premium Bonds can be purchased by anyone who is 16 years old or older. On behalf of their kid or grandchild under the age of 16, parents, legal guardians, and (great) grandparents can invest.
No interest is paid on Premium Bonds. Instead, your Bonds will be entered into a monthly prize draw to win tax-free gifts.
Premium Bonds – the prize draw
Every month, almost two million awards are distributed to lucky Bond holders whose numbers are determined at random.
For every £1 you invest, you will receive a unique Bond number. Every month, each number has a separate and equal chance of winning a prize.
On the National Savings and Investment (NS&I) website, you may learn more, apply online, and check if you’ve won if you have Premium Bonds.
Who owns the funds?
First, you must decide whether to keep the cash in your name or in the name of your grandchild.
Your savings could jeopardize your grandchild’s financial aid application. This is especially true if the funds are held in the name of your grandchild.
The Free Application for Federal Student Aid (FAFSA) uses a formula to determine how much financial aid a student should receive.
When calculating a student’s ability to pay for college, this system strongly penalizes them for money stored in their name.
Access to the funds
Next, if you put the money in your grandchild’s name, they may be able to access it before you wish them to.
They may also use the money in ways other than those for which you intended.
A child can normally access any funds in their name until they become 18, or 21, depending on the state. That also implies they’re free to do anything they want with them.
If you keep the money in your name and simply identify your grandchild as a beneficiary, you may maintain control over how it is spent.
You won’t have to deal with an 18-year-old wasting thousands of dollars customizing an old car this way.
Is it wise to invest in savings bonds for your grandchildren?
Purchasing a US saving bond for your grandchild is considered a secure investment because it is backed by the US government. Savings bonds are especially advantageous because any interest collected is exempt from municipal and state taxes. Prior to January 1, 2012, you could buy savings bonds online or at your local commercial bank. Bonds, on the other hand, are now solely available through the TreasuryDirect website. Series I and Series EE bonds are the two categories of bonds available for purchase as of 2012.
Can I purchase premium bonds on behalf of someone else?
To purchase them for yourself or someone else, you must be at least 16 years old.
If your child is under the age of 16, you can purchase Premium Bonds online, over the phone, or through the mail, or by transferring funds from another NS&I account in the child’s name.
How can I go about purchasing bonds for my grandchildren?
- Go to www.treasurydirect.gov for further information.
- Purchase the savings bond you choose (Series EE or Series I) in the denomination you want ($25 to $10,000).
Is it possible to make a tax-free gift to my grandchildren?
You have options beyond the $5.43 million lifetime exemption if you decide to give presents to your children or grandchildren while you’re still living. Here are four things to talk about with your estate planner about:
- Each year, the amount of tax-free gifts is capped. Each year, the Internal Revenue Service (IRS) establishes a maximum gift-tax exclusion. It will cost $14,000 per person in 2015. You can gift that much to as many people as you choose, and each spouse is limited to $14,000 every year.
If you and your spouse have two grandkids, you can individually give $14,000 to each of them, totaling $56,000 in tax-free gifts. Remember, these are gifts that are tax-free in excess of the $5.43 million exemption limit.
- Medical, dental, and tuition costs are all exempt from the cap. If you wish to make a gift for your child’s or grandchild’s medical or dental bills or tuition, you may be able to do so without violating the yearly gift limits. You must, however, pay the doctor, dentist, or school immediately to guarantee that these contributions are tax-exempt.
There is no educational exclusion for books, supplies, or lodging and board, despite the fact that tuition expenditures are exempt. Furthermore, the medical exclusion does not apply to sums paid for medical care that are reimbursed by your insurance company.
If your grandchild receives financial aid, be cautious about paying his or her tuition directly to the college. A contribution made directly to the kid by someone other than the parent will be recognized as cash support, reducing the amount of aid available to the child.
- A 529 college savings plan allows you to give more. Although contributions to state-sponsored 529 plans are not exempt from the gift tax limit, you can make five years’ worth of contributions at once and avoid the gift tax. That implies you might contribute $70,000 without triggering the gift tax in a single year.
Most states allow you to deduct your donation from your state tax return up to a certain amount. There is no tax deduction at the federal level.
Your earnings will be deferred on federal and most state tax returns after your money is in a 529 plan. When the money is taken out for eligible education expenses, no tax is owed. The donation limitations are considerable, ranging between $300,000 and $400,000 per beneficiary on average.
One piece of advice for grandparents: If you open a 529 for your grandchild, he or she may lose a lot of financial aid. However, there is a workaround. Have your child open a 529 plan, and then you can contribute to it.
- Keep an eye out for the “Kiddie Tax.” This rule was enacted to ensure that parents did not gift stocks to their children under the age of 24 in order to avoid paying taxes. If the interest or dividends from the gifted shares exceed $2,000, they will be taxed at the highest rate applicable to the parents.
What is the maximum amount you may give your grandchildren tax-free?
Giving assets to your grandchildren can do more than help them get a good start in life; it can also help you minimize the amount of your estate and the tax you’ll owe when you die.
Giving the grandchild an outright gift is perhaps the easiest method of presenting. Without having to record the gifts, you can give each grandchild up to $16,000 each year (in 2022). If you’re married, you and your partner can each give such a present. A married couple with four grandkids, for example, can give away up to $128,000 per year without incurring gift tax. Furthermore, the gifts will not be taxed as income to your grandkids (although the earnings on the gifts if they are invested will be taxed). Just keep in mind that any donation could jeopardize your Medicaid eligibility.
What accounts do grandparents have access to for their grandchildren?
Start saving and give your grandchildren the chance to win tax-free prizes every month instead of just giving them money. You could make a fortune out of yourself!
- Every month, every £1 Premium Bond purchased from National Savings & Investments (NS&I) is entered into a prize draw.
- Every month, numbers are picked at random to win rewards ranging from £25 to two £1 million jackpots.
- There’s no assurance your bonds will win anything, but the more you buy, the better your grandchild’s chances are.
- Unlike the lottery, your grandchildren will not lose their initial investment and will be able to redeem their Premium Bonds at any time.
Grandparents can purchase Premium Bonds from £25 to £50,000 for each child under the age of 16.
You can apply online or by mail, but you must name a parent or guardian to manage the funds and provide their address and birth date.
The tax-efficient option: bare trusts
A bare trust is a simple legal arrangement that allows you to give money away while maintaining control:
- appoint someone to be in charge (the trustee, which could be you or someone else)
You may make sure your grandchildren don’t get their hands on money until they’re mature enough to manage it responsibly by establishing a bare trust.
Trustees control the money on behalf of the child until they turn 18. School fees could be paid using bare trusts, as trustees can be instructed to distribute funds for the benefit of the child’s education.
This solution is also cost-effective in terms of taxes. Assets held in a bare trust are treated as if they were owned by the child, which means you usually don’t have to pay any or very little tax.
You can contribute up to £3,000 every year (or more if it comes from your salary and has no impact on your way of living) and it will not be subject to inheritance tax.
Keep in mind that the £3,000 yearly limit applies to all cash or assets you gift to others, not simply the money in the trust. If you do not follow this rule, the money you placed into the trust may be subject to inheritance tax.
How to invest for grandchildren
Here’s a rundown of the numerous ways you can invest for your grandchildren if you don’t want to use a savings account:
- Paying into a parent’s or legal guardian’s investment account, such as a junior ISA or a pension
- Invest in your own pension or Individual Savings Account (ISA). You’d still have control over the money, but you could give some of it to your grandchildren.
Can I open an investment account for my grandchild?
While grandparents can contribute to accounts like a junior ISA or junior SIPP, opening one normally requires the involvement of a parent or legal guardian.
If the money is utilized for the child’s benefit, earlier withdrawals may be permitted.
How much money may grandparents give their grandchildren in the United Kingdom?
Gifts of money from grandparents may make a significant difference in the lives of grandchildren, from school fees and university to putting money towards a deposit. Giving little and often, based on existing Inheritance Tax (IHT) exemptions, could help you decrease or prevent any IHT liability.
So, how much can you give tax-free to your grandchildren? Each grandparent can make an IHT-free gift of up to £3,000 in any one tax year. The balance of £3,000 can be carried forward to the next tax year if the entire £3,000 is not utilised in a single tax year. So, if you don’t offer any monetary presents in one tax year, you can give away a total of £6,000 the following year. If not used in the following year, any unused funds are forfeited. In a nutshell, it cannot be carried over to the third year. This exemption is only applicable to gifts made once in a lifetime.
You can also give an unlimited number of minor £250 gifts in each tax year, as long as the receiver is different each time. Furthermore, presents provided in honor of a grandchild’s (or great- grandchild’s) wedding or civil partnership are exempt up to £2,500; this rises to £5,000 if your own child is marrying.
Can grandparents purchase savings bonds on behalf of their grandchildren?
Savings bonds are acquired on the TreasuryDirect.gov website through an account. Grandparents must open an account before purchasing bonds for minor grandchildren, and the gift bonds can then be moved to accounts in the grandchildren’s names, or linked to accounts in the names or names of the grandchildren’s parents.