Investing for grandchildren is a long term game. Moneycube outlines the options available in Ireland, and explains our preferred approach.
How much?
Let’s cut to the chase. Your approach to saving for your grandchild’s future depends heavily on how much cash you’re planning to put away, and how quickly.
Play it smart, and you can steer clear of some hefty tax charges.
Current tax rules mean a grandchild has a lifetime tax-free inheritance limit of €32,500 from a grandparent.
Hand over more than that, and 33% goes to the taxman.
There is a better way
Fortunately, the ‘small gift’ exemption lets anyone give another person up to €3,000 in a calendar year with no tax consequences.
Receiving this sum from four grandparents for five years would land a lucky grandchild with €60,000, with no tax consequences – and that’s before any investment growth!
In short, investing for grandchildren is best done regularly, over several years.
Where to put it?
You have several options when it comes to opening an account, from children’s bank accounts to State savings and investment funds.
Moneycube believes investment funds are the best option for most people.
Why? Because saving for a young grandchild is a long-term exercise. And over the long term, investing almost always produces better returns than leaving cash in the bank.
Bank: where’s my interest?
All the main banks offer savings accounts for children – try here and here for example.
These have the same problem as everyone else’s bank accounts right now: they pay a pittance in interest. A ‘free’ piggy bank for opening the account won’t change that.
As we’ve discussed before, inflation will almost certainly erode any interest your grandchild receives. State savings have the same problem, but are at least tax-free.
Fund: a better route to long-term growth
With Moneycube, funds are easy to start, easy to manage and top up, and can be clearly demarcated in the name of your grandchild. The money is managed by long-established professional fund managers for growth over many years.
You can drip-feed your money to take full advantage of the small gift exemption and reduce future inheritance tax liabilities.
And you have the possibility of generating real growth for your grandchild’s future.
If you contributed €3,000 per year over 18 years, your grandchild’s investment pot could generate an after-tax return of almost €72,000 when invested in funds. (This is based on 6% average annual growth, total annual charges of 1.25%, and the current exit tax regime).
At Moneycube, we can help you think through the options so that you can give your grandchild a financial headstart.
Get started with Moneycube today.
