Smart Ways Grandparents Can Give to Their Grandchildren

Many grandparents want to do more than write a check for birthdays or holidays. They want to be intentional about how they support their grandchildren’s future. Understanding the best ways for grandparents giving to grandchildren can help families make informed decisions while maintaining flexibility and control.

Three of the most common options are 529 college savings plans, custodial accounts, and brokerage accounts held in the grandparent’s name but earmarked for a child. Each approach offers different benefits, and the right choice depends on goals, timing, and desired level of control.

529 College Savings Plans

A 529 plan is often the first option grandparents consider.

A grandparent can open and own a 529 plan with a grandchild as the beneficiary. The grandparent maintains control over investment decisions and when distributions are taken. Funds grow tax deferred, and withdrawals used for qualified education expenses are tax free.

Key benefits include:

• Tax advantaged growth for education

• High contribution limits

• Grandparent retains ownership and control

• Ability to change beneficiaries if plans change

Grandparent owned 529 plans do not impact federal financial aid. These accounts are not reported as assets on the FAFSA, and distributions are not counted as student income under current rules.

For a deeper look at how 529 plans work and how they may fit into an education funding strategy, read our full guide here: The Benefits of Using a 529 Plan for College Savings

529 plans work best when education is a primary goal and tax efficiency matters.

Custodial Accounts (UGMA or UTMA)

Custodial accounts allow grandparents to invest assets for a minor child under state law.

In a custodial account, the child is the legal owner of the assets, while an adult serves as custodian until the child reaches the age of majority. At that point, the child gains full control of the account with no restrictions on how the money is used.

Advantages include:

• Broad investment flexibility

• Funds can be used for any purpose that benefits the child

• Simple to establish

Contributions to a custodial account are irrevocable gifts. The grandparent cannot change the beneficiary or reclaim the assets once they are contributed.

For Georgia residents, custodial accounts transfer to the child at age 21. At that point, the child has full legal control over the assets.

Because the assets belong to the child, custodial accounts are included in financial aid calculations and may reduce eligibility.

Custodial accounts may be appropriate for smaller gifts or when flexibility of use is more important than long term control.

Brokerage Accounts in the Grandparent’s Name

Some grandparents prefer to keep investments in their own name while earmarking the funds for a grandchild.

In this arrangement, the grandparent opens or uses a taxable brokerage account and invests with the intention of using the money later for a grandchild’s benefit. The grandparent retains full ownership, control, and flexibility.

Benefits include:

• Complete control over assets and timing

• No restrictions on how funds are used

• No impact on the child’s financial aid while assets remain in the grandparent’s name

• Ability to adjust plans as family circumstances change

Because the account remains in the grandparent’s name, the money is still theirs. The grandparent retains full access to the funds and can use them if personal needs or unexpected expenses arise. Interest, dividends, and capital gains are reported on the grandparent’s tax return, which can make this approach less tax efficient than a 529 plan but significantly more flexible.

Brokerage accounts work well when grandparents want options beyond education, such as helping with a first home, starting a business, or other major life expenses.

Choosing the Right Strategy

There is no single best option for grandparents giving to grandchildren.

A 529 plan is often ideal when education is the primary goal. Custodial accounts offer flexibility but involve a permanent transfer of control. Brokerage accounts in the grandparent’s name provide maximum flexibility and ownership.

In many cases, a combination of strategies may make sense depending on the amount being gifted, the child’s age, and the grandparent’s overall financial picture.

529 College Savings Plan

Pros

• Tax advantaged growth

• Grandparent retains control

• No federal financial aid impact

Cons

• Education focused use

• Penalties for non qualified withdrawals

Custodial Account (UGMA/UTMA)

Pros

• Flexible use of funds

• Broad investment options

Cons

• Irrevocable gift

• Child gains control at age 21 in Georgia

• May impact financial aid

Brokerage Account (Grandparent Owned)

Pros

• Maximum flexibility

• Assets remain with grandparent

• No financial aid impact

Cons

• Taxable investment account

• No education specific tax advantages

Final Thoughts

Giving to grandchildren is about more than generosity. It is about creating opportunity while protecting long term financial security. With thoughtful planning, grandparents can support their families in meaningful ways while maintaining control and flexibility.

At Alpha, we help families evaluate these options in the context of their broader financial and estate plans. By coordinating education funding, gifting strategies, and long term goals, we help ensure your generosity supports your grandchildren while preserving your own financial confidence.