Question: Charles and Kim from Montgomery: Our grandson is 6. What are the best ways we can help give him a financial head start?
A: One of the best ways to take advantage of your grandson’s young age is to help him save for an expense that’s more than a decade away: College. You can either open a 529 college plan account as the grandparents or, if his parents already have an account open, you could just contribute to their plan (in Ohio, you do not need to be the account owner to get the state tax deduction). These plans are nice because they provide flexibility: Even if he decides not to attend a four-year college, the funds can still be used for vocational school or community college.
Once he’s a teenager and perhaps has ‘earned income’ from a job, we recommend he saves some of his paycheck in a Roth IRA (his parents will need to open a custodial account on his behalf). This account will grow tax free for the rest of his life. You can help out by ‘matching’ however much he saves in that Roth IRA (note: the total amount contributed per tax year cannot exceed the amount earned or that year’s IRS contribution limit). For instance, let’s say he makes $3,000 one summer from a part-time job and decides to save half, or $1,500. You can then contribute up to another $1,500 to the account.