By Michael Henley, CFP®, CPWA®, CRPC®, RMA®
When families come to us seeking meaningful ways to support the next generation, we often explore the best financial gifts for kids and grandkids, strategies that do more than simply pass on wealth. Giving financial gifts during your lifetime not only allows these assets more time to grow and benefit your loved ones, but it can provide a great deal of happiness and fulfillment while also reducing the size of your taxable estate. Even more importantly, these gifts help instill healthy financial habits, teach children how money works, and build a sense of security and confidence that lasts well beyond the initial contribution.
If you’re looking to give a gift that truly makes a long-term impact, here are several financial strategies that can set the next generation up for lasting success.
Utilize a Roth IRA for a Child or Grandchild With Earned Income
A Roth IRA is one of the most underutilized tools for building long-term wealth, especially for a young person with decades ahead of them. If your child or grandchild earns income from a job, they’re eligible to contribute.
As a parent or grandparent, you can open a custodial Roth IRA on their behalf and fund it up to the lesser of their income or the IRS limit ($7,000 for 2025).
We recently helped a family set this up for their 16-year-old grandson, who earned $3,500 working part-time at a golf course. They contributed $3,500 to a custodial Roth IRA in his name and paired it with a conversation about what the investment meant.
Together, they reviewed how even a modest contribution, invested early, could grow significantly over the next 40-plus years. The visual of compound growth over time made a strong impression, and their grandson now asks smart questions about his portfolio each quarter.
Even better, contributions to a Roth IRA can be withdrawn tax-free, and if left alone, they can be used for retirement, a first home, or other future needs. Matching a child’s earnings not only amplifies the financial impact but also reinforces the reward of saving.
Consider Contributing to a 529 Plan
A 529 college savings plan remains one of the most effective ways to help fund future education.
The investment grows tax-free, and as long as withdrawals are used for qualified education expenses, no taxes are due. You can contribute to an existing plan or open one with the child as the beneficiary.
These accounts also offer flexibility for larger gifts. The IRS allows contributions up to $95,000 in 2025 using a five-year gift tax averaging rule if you file as single; $190,000 if you file jointly. That kind of front-loading gives the investments more time to grow and can reduce future taxable estate balances in the process. For our PA resident clients, it also reduces what is subject to PA inheritance tax.
Thanks to recent FAFSA changes, grandparent-owned 529 accounts no longer impact financial aid eligibility, which removes a common concern for families trying to help without inadvertently reducing aid.
Think About Opening a Custodial Investment Account (UTMA/UGMA)
Custodial investment accounts let you gift assets to a child while maintaining control until they reach the age of majority. These accounts can be used for any future expenses, not just education, and offer full flexibility in how the funds are invested.
They’re also a natural tool for financial education. By reviewing the portfolio together, discussing market performance, and tracking dividend reinvestments, kids can begin to understand the mechanics of wealth-building.
From a tax perspective, custodial investment accounts have thresholds: For 2025, the first $1,350 in unearned income is generally tax-exempt at the federal level, while the next $1,350 is taxed at the child’s rate. Any income above $2,700 is taxed at the parent’s rate.
Also, keep in mind that while assets in custodial accounts are legally the child’s, they may count against financial aid eligibility, so it’s worth considering this in a broader family gifting plan.
Consider Gifting Stock or Transferring Shares
Giving shares of a recognizable company can make investing feel real to a child. If you already own stock, you can transfer shares into a custodial brokerage account in their name. The shares are taxed based on your cost basis, and the capital gains are taxed at the child’s applicable rate when sold.
Some families like to choose companies the child interacts with like Apple, Nike, or Disney, for example. These gifts often spark conversations about how companies generate revenue, what influences stock prices, and what it means to be a shareholder.
You can also use direct stock purchase programs or gifting platforms to simplify the process.
While it may be tempting to chase performance, the real value lies in education. A child who owns a single share of Coca-Cola may become more curious about dividends, long-term investing, and the broader economy. That curiosity is often the seed that leads to more informed financial behavior later in life.
Partner With an Experienced Professional
A financial gift is more effective when accompanied by a conversation. Explaining why you are making the gift, how the account works, and what they can do with it helps young people engage. Even small, consistent messages about delayed gratification, compounding, and responsibility can have long-term effects.
If you are thinking through how to structure the best financial gifts for kids and grandkids or how they fit into your larger estate or tax picture, we are here to help. These strategies are not reserved for year-end planning or birthdays. They can be built into your legacy quietly, consistently, and intentionally.
To schedule a meeting to learn how we can help, call (484) 785-0050, email contact@brandywineoak.com, or get started online now.
Your Questions About Gifting to Children and Grandchildren
Q: What are the contribution limits for a Roth IRA for children in 2025?
A: Children can contribute up to the lesser of their earned income or $7,000 for 2025. Parents or grandparents can fund a custodial Roth IRA on behalf of a child who has earned income from a job. The contributions grow tax-free, and the original contributions can be withdrawn tax-free and penalty-free at any time. However, earnings on those contributions are generally subject to taxes and penalties if withdrawn before age 59½.
Q: How much can grandparents contribute to a 529 plan without triggering gift tax issues?
A: Grandparents can contribute up to $95,000 in 2025 (or $190,000 for married couples filing jointly) using the five-year gift tax averaging rule. This allows for front-loading contributions to give investments more time to grow. Additionally, grandparent-owned 529 accounts no longer impact financial aid eligibility due to recent FAFSA changes. However, about 200 private colleges that use the CSS Profile for institutional aid may still consider grandparent 529 distributions when determining aid eligibility.
Q: What are the tax implications of custodial investment accounts (UTMA/UGMA) for children?
A: For 2025, the first $1,350 in unearned income from custodial accounts is generally tax-exempt at the federal level. The next $1,350 is taxed at the child’s rate. Any income above $2,700 is subject to the “kiddie tax” and taxed at the parent’s rate. These accounts may count against financial aid eligibility since the assets legally belong to the child.
Q: Should I work with a financial advisor for gifting to my children and grandchildren?
A: A financial advisor can help coordinate multiple gifting strategies to maximize tax benefits and align with your overall estate plan. They can structure the timing of contributions across different account types (Roth IRAs, 529 plans, custodial accounts) to optimize tax advantages, navigate gift tax rules and annual exclusions, and integrate gifting with your retirement and estate planning goals. Professional guidance becomes particularly valuable when coordinating gifts between spouses, managing the five-year 529 averaging rule, or balancing financial gifts with other wealth transfer strategies to minimize your overall tax burden while building wealth for the next generation.
About Michael
Michael Henley is the Founder and CEO of Brandywine Oak Private Wealth, a private wealth management and registered independent advisory firm headquartered in Kennett Square, PA. Over the course of his 20-year career, Michael has been dedicated to helping wealthy individuals and families plan and manage all aspects of their finances and investments. With a passion for helping others look behind the curtain and understand the complex world of finance, he develops close relationships with clients as he helps them progress toward their financial objectives. Michael loves to provide clarity and alleviate financial anxiety, help prevent families from overpaying in taxes, and give wealthy families permission to enjoy their life savings. He says, “No work is more gratifying than giving families outcomes to what matters most to them.”
Michael holds the CERTIFIED FINANCIAL PLANNER®, Certified Private Wealth Advisor®, Chartered Retirement Planning Counselor℠, and Retirement Management Advisor® designations. Residing in Chadds Ford, PA, with his two children, he enjoys outdoor activities, particularly maintaining trails on his property, hiking with his dogs, and being an actively engaged dad, always taking his kids everywhere. Michael’s latest hobby is tennis and he recently started ice skating to join his daughter Savannah. He can also be found moving logs to the firepit with his son Maverick on the tractor. Michael serves on the board of United Way of Southern Chester County and loves mentoring younger advisors. Great mentors helped him succeed, and he’s convinced that every leader needs to both have mentors and be a mentor. To learn more about Michael, connect with him on LinkedIn.
Brandywine Oak Private Wealth is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
