How Can Grandparents Gift Money to Their Grandchildren?
Quick answer: Grandparents who want to gift money to grandchildren have several tax-advantaged options, each suited to a different goal. A 529 plan is built for education — contributions grow tax-free and come out tax-free for qualified education expenses, with the grandparent keeping control of the account. A UTMA custodial account is the most flexible — the money can be used for anything that benefits the child — but it becomes the child's outright property at the age of majority, and the gift is irrevocable. A Trump account is a newly created type of children's IRA (established under 2025 legislation) designed for long-term, retirement-style savings, with money generally locked up until the child turns 18. There's no single "best" option — the right choice depends on what you want the gift to accomplish, how much control you want to keep, and the tax and financial-aid implications. For Columbus, Ohio grandparents, these decisions are best made as part of a broader estate and gifting plan. This article is educational; specific gifting, tax, and estate decisions should be made with a tax professional and, where relevant, an estate attorney.
Key Takeaways
- Grandparents have several tax-advantaged ways to gift to grandchildren, each suited to a different purpose.
- 529 plans are built for education, grow tax-free for qualified education expenses, and let the grandparent keep control.
- UTMA custodial accounts are the most flexible in use, but the money becomes the child's property at the age of majority and the gift is irrevocable.
- Trump accounts are a new children's IRA (from 2025 legislation) designed for long-term, retirement-style savings, with funds generally locked until age 18.
- Each option has different implications for control, taxes, financial aid, and how the money can eventually be used.
- Annual gift tax exclusion rules and estate planning considerations apply to all of these and should be coordinated with a professional.
- The right choice depends on your goal for the gift, not on which account is "best" in the abstract.
Table of Contents
- Why Grandparents Gift, and Why the Method Matters
- A Word on Gift Taxes First
- Option 1: The 529 Education Savings Plan
- Option 2: The UTMA Custodial Account
- Option 3: The Trump Account
- Comparing the Three Side by Side
- The Financial Aid Consideration
- Beyond the Accounts: Other Ways to Give
- How to Choose the Right Approach
- Frequently Asked Questions
Why Grandparents Gift, and Why the Method Matters
For many grandparents, helping grandchildren financially is one of the more meaningful things they can do with their wealth. Whether it's funding an education, giving a head start on adult life, or simply passing along resources to the next generation, the impulse to give is common — and the ways to do it well are worth understanding.
Why the method matters:
The way you give can matter as much as the amount. Different approaches have very different implications for:
- What the money can be used for (education only, anything, or long-term savings)
- Who controls the money and when
- The tax treatment, both now and later
- The effect on the grandchild's financial aid eligibility
- Whether the gift is reversible or permanent
- How it fits into your own estate and tax planning
A gift made through the wrong vehicle for your goal can create unintended consequences — money that becomes the grandchild's outright at 18 when you wanted it earmarked for college, or funds locked up for decades when you wanted them available sooner. Matching the method to the goal is what makes the gift accomplish what you intend.
The three main account-based options:
This article focuses on three tax-advantaged account types grandparents commonly use: the 529 education savings plan, the UTMA custodial account, and the newly created Trump account. Each serves a different purpose, and understanding the differences is the key to choosing well.
For Columbus-area grandparents, these gifting decisions are best made not in isolation but as part of a broader estate and gifting plan — because how you give to grandchildren connects to your own tax picture, your estate plan, and your overall financial goals.
A Word on Gift Taxes First
Before getting into the specific accounts, it helps to understand the gift tax framework that applies to all of them.
The annual gift tax exclusion:
The IRS allows you to give up to a certain amount per person per year without any gift tax consequences or the need to file a gift tax return. This annual exclusion amount is set by the IRS and adjusts periodically for inflation. A married couple can generally combine their exclusions, effectively doubling the amount they can give each grandchild per year. For most grandparents, gifts to grandchildren fall within these annual limits and create no gift tax issue at all.
The lifetime exemption:
Beyond the annual exclusion, there's a much larger lifetime gift and estate tax exemption. Gifts above the annual exclusion count against this lifetime amount rather than triggering an immediate tax. For the majority of families, the lifetime exemption is large enough that gift tax is never actually owed — but gifts above the annual exclusion generally require filing a gift tax return to track them against the exemption.
Why this matters for the accounts below:
- Contributions to 529 plans, UTMA accounts, and Trump accounts are generally treated as gifts to the grandchild
- Staying within the annual exclusion keeps things simple (no gift tax return needed)
- 529 plans have a special "superfunding" rule (covered below) that allows a larger up-front gift
- Larger gifts may have estate planning benefits, since they remove assets from your taxable estate
The important caveat:
Gift and estate tax rules — the exclusion amounts, the exemption, and the rules around them — change periodically, and the specific dollar figures adjust over time. Because these numbers change and the planning can be nuanced, the gift tax dimension of any significant gifting is worth confirming with a tax professional. I've kept specific dollar amounts out of this article precisely because they change; your tax professional can give you the current figures.
For Columbus-area grandparents making significant gifts, coordinating the gifting with the estate plan and confirming the current gift tax rules is an important step.
Option 1: The 529 Education Savings Plan
The 529 plan is the most popular vehicle for grandparents who want to help specifically with education.
How it works:
A 529 plan is a tax-advantaged account designed for education savings. You contribute after-tax money, it grows tax-free, and withdrawals are tax-free when used for qualified education expenses — college tuition, room and board, books, and (within limits) K-12 tuition and certain other education costs.
The key features for grandparents:
- You keep control. As the account owner, you decide when and how the money is used. The grandchild is the beneficiary but doesn't control the account. This is a major advantage for grandparents who want to help with education without handing over control.
- Tax-free growth and withdrawals for education. The core benefit — no tax on the growth or on qualified education withdrawals.
- You can change the beneficiary. If one grandchild doesn't need the money (scholarship, doesn't attend college), you can generally change the beneficiary to another grandchild or eligible family member.
- The "superfunding" option. 529 plans allow a special election to front-load up to five years' worth of annual exclusion gifts in a single year without gift tax consequences — a powerful way to move a larger sum into tax-advantaged growth at once.
- Flexibility has expanded. Recent rule changes have added flexibility, including the ability to roll certain unused 529 funds into a Roth IRA for the beneficiary, subject to limits and conditions.
The trade-offs:
- The money is intended for education; non-qualified withdrawals face income tax on the earnings plus a penalty
- Investment options are limited to what the specific 529 plan offers
- If the grandchild doesn't pursue education, the money is less flexible (though the beneficiary change and Roth rollover options help)
Ohio's 529 plan:
Ohio sponsors its own 529 plan (CollegeAdvantage), and Ohio offers a state tax deduction for contributions by Ohio taxpayers, subject to limits. Grandparents who are Ohio residents may benefit from the state tax deduction in addition to the federal tax-free growth. The specifics of the deduction and its limits should be confirmed, as they can change. You're not required to use your own state's plan, but the Ohio deduction is a reason many Ohio grandparents do.
Who the 529 fits:
The 529 is ideal for grandparents whose primary goal is education, who want to retain control of the money, and who value the tax-free growth for that specific purpose. It's the most targeted of the three options.
Option 2: The UTMA Custodial Account
The UTMA (Uniform Transfers to Minors Act) custodial account is the most flexible option in terms of how the money can be used — with an important trade-off around control.
How it works:
A UTMA account is a custodial account held for the benefit of a minor. You (or another adult) serve as custodian, managing the account until the child reaches the age of majority. At that point, the account becomes the child's outright property, and they can use it however they wish.
The key features:
- Maximum flexibility in use. Unlike a 529 (education) or Trump account (retirement-style), UTMA money can be used for anything that benefits the child — education, a car, a first home down payment, starting a business, or anything else. There's no "qualified use" restriction.
- Simple to set up. UTMA accounts are straightforward to open at most financial institutions.
- Can hold various assets. UTMAs can hold cash, stocks, mutual funds, and other investments.
- Custodian controls until majority. You manage the account and investments while the child is a minor.
The critical trade-offs:
- The gift is irrevocable. Once you put money in a UTMA, it legally belongs to the child. You can't take it back or redirect it to someone else. This is a permanent, irrevocable gift.
- The child gets full control at the age of majority. When the child reaches the age of majority (which varies by state — in Ohio, custodial accounts can extend to age 21 under certain provisions), the money becomes theirs to use however they want, with no strings attached. A grandparent who envisioned the money going toward college may find an 18- or 21-year-old with different ideas.
- Tax treatment. UTMA earnings are taxed to the child, and above certain thresholds, the "kiddie tax" rules can apply, taxing some of the child's unearned income at the parents' rate. The specifics should be confirmed with a tax professional.
- Financial aid impact. UTMA assets are generally counted as the student's assets for financial aid purposes, which can reduce aid eligibility more than parent- or grandparent-owned assets (covered below).
Who the UTMA fits:
The UTMA fits grandparents who value flexibility over control and are comfortable with the money becoming the child's outright at the age of majority. It's the right tool when the goal is a general-purpose gift rather than an education- or retirement-specific one — and when you trust that the grandchild will use the money well once it's theirs.
The honest caution:
The loss of control at the age of majority is the UTMA's defining feature, and it's essential to understand before funding one. If it would trouble you for the grandchild to receive the full amount, unrestricted, at 18 or 21, the UTMA may not be the right vehicle.
Option 3: The Trump Account
The Trump account is a newly created type of children's savings account, established under 2025 federal legislation, designed for long-term, retirement-style savings.
What it is:
Trump Accounts are a new form of traditional individual retirement account (IRA) that the 2025 reconciliation law created for the benefit of children. They are available to children under age 18 with a Social Security number, and they operate as traditional IRAs under a special set of rules that apply during the "growth period" — the years before the child turns 18. U.S. Bank + 2
How it works:
- The account is owned by the child, with a parent or guardian authorized to act on the child's behalf until they turn 18. Congress.gov
- Contributions can be made by parents, grandparents, other individuals, employers, and charitable or government entities. Grandparents can contribute directly. Bipartisan Policy Center
- Individuals can contribute up to a combined total of $5,000 per year per child (a limit that will be indexed for inflation in future years). H&R Block
- Contributions from individuals like grandparents are made with after-tax dollars and are not tax-deductible, and the funds grow tax-deferred. Fidelity
- The funds may generally only be invested in eligible low-cost stock index funds or ETFs made up predominantly of U.S. companies, per Treasury rules. Center for Retirement Research
The government seed money:
Children born during calendar years 2025 through 2028 who are U.S. citizens are eligible for a one-time $1,000 federal government contribution to their Trump account, which can be claimed during the growth period. This pilot contribution doesn't count against the $5,000 annual limit. This is specific to that birth-year window; grandchildren born outside it can still have a Trump account but won't receive the $1,000. vanguardH&R Block
The withdrawal rules:
- During the growth period (birth through the year before the child turns 18), distributions are generally not allowed except in narrow cases. taxesforexpats
- When the child turns 18, the account converts to a traditional IRA, the young adult gains control, and standard IRA rules take effect.
- After that, withdrawals are taxed as ordinary income, and money taken before age 59½ may face both income tax and a 10% early withdrawal penalty unless an exception applies (such as certain education expenses, a first home purchase, or birth/adoption costs). Viable
An important tax nuance:
Private out-of-pocket contributions from grandparents, parents, or the child create "basis" — meaning that portion comes back out tax-free — while the government seed money, employer contributions, and charitable contributions do not create basis and are fully taxable on withdrawal along with all earnings. Keeping records of grandparent contributions matters for this reason. TurboTax
A planning angle worth noting:
Once the child turns 18, they can convert the traditional IRA into a Roth IRA. Because a young adult is often in a very low tax bracket, this can be an opportunity to convert tax-deferred growth into a Roth at relatively low tax cost — though whether and when to do so is an individual decision for a tax professional to evaluate. CNN
A state tax caution:
While Trump accounts receive tax-deferred treatment federally, some states have been reported as not yet conforming to that treatment, and this list has been changing. Ohio's treatment should be confirmed with a tax professional before relying on the federal tax picture at the state level. taxesforexpats
Who the Trump account fits:
The Trump account fits grandparents whose goal is a very long-term, retirement-style gift — planting a seed that compounds over decades. Because the money is generally locked until 18 and then governed by IRA rules, it's the least flexible for near-term needs like education, but potentially powerful for long-horizon wealth building.
The important caveat on newness:
Trump accounts are brand new, and the rules and guidance have been evolving. Anyone considering one should confirm the current federal rules, the state tax treatment, and the account mechanics with a tax professional and the account custodian before proceeding, and check official sources like the IRS and trumpaccounts.gov for the latest.
Comparing the Three Side by Side
Each account serves a different purpose. Here's how they compare across the factors that matter most.
Primary purpose: The 529 is for education. The UTMA is for general, flexible use. The Trump account is for long-term, retirement-style savings.
Who controls the money: With a 529, the grandparent (as account owner) keeps control. With a UTMA, the custodian controls it until the child reaches the age of majority, then the child controls it. With a Trump account, a parent/guardian acts for the child until 18, then the child controls it.
When the child gets access: With a 529, only for qualified education (grandparent-directed). With a UTMA, outright at the age of majority. With a Trump account, generally at 18, then under IRA rules.
Tax treatment of growth: The 529 grows tax-free for qualified education. The UTMA is taxable to the child (with possible kiddie tax). The Trump account grows tax-deferred.
Tax treatment of withdrawals: 529 withdrawals are tax-free for qualified education. UTMA withdrawals have no special rules (the account is simply the child's). Trump account withdrawals are taxed as ordinary income (minus basis), with possible early-withdrawal penalties.
Reversibility: The 529 lets you change the beneficiary and retain control. The UTMA is irrevocable. The Trump account contribution is a completed gift to the child's account.
Flexibility of use: The UTMA is the most flexible (any use). The 529 is education-focused. The Trump account is the least flexible near-term (locked until 18, then retirement rules).
The summary: If your goal is education, the 529 is usually the natural fit. If your goal is a flexible, general-purpose gift and you're comfortable with the child controlling it at majority, the UTMA fits. If your goal is a very long-term, retirement-style head start, the Trump account is the new option built for that horizon. Many grandparents use more than one, matching each to a different goal.
The Financial Aid Consideration
For grandchildren likely to attend college, the financial aid impact of how you give is worth understanding, because it varies by account type.
Why it matters:
Financial aid formulas weigh assets and income differently depending on who owns them. An account owned by the student is generally counted more heavily against aid eligibility than one owned by a parent or grandparent. This means the same dollar amount can affect aid differently depending on the vehicle.
How the three compare (in general terms):
- 529 plans owned by a grandparent have historically been treated favorably in recent financial aid rule changes, with grandparent-owned 529 distributions no longer counting against the student's aid the way they once did. This has made grandparent 529s more attractive from an aid standpoint.
- UTMA accounts are generally considered the student's assets, which can weigh more heavily against financial aid eligibility.
- Trump accounts, as retirement accounts, may be treated differently again; because they're new, how financial aid formulas treat them is an area to confirm.
The important caveat:
Financial aid rules are complex and have been changing. The treatment of each account type should be confirmed based on current rules if financial aid is a meaningful consideration for the family. This is an area where coordinating with a financial aid-savvy professional can matter.
For Columbus-area grandparents where a grandchild's college financial aid is a real factor, the aid treatment can influence which vehicle makes the most sense.
Beyond the Accounts: Other Ways to Give
The three accounts aren't the only ways grandparents can help grandchildren. A few other approaches are worth knowing.
Direct payment of tuition or medical expenses.
There's a special rule that allows you to pay a grandchild's tuition or medical expenses directly to the institution or provider without the payment counting against your annual gift tax exclusion at all. Paying tuition directly to the college is an unlimited, gift-tax-free way to help — a powerful tool for grandparents who want to fund education without the gift tax dimension.
Outright cash gifts.
You can simply give cash within the annual exclusion, with no account or strings attached. Simple, flexible, and fully the recipient's — but without the tax-advantaged growth of the dedicated accounts.
Contributions to a Roth IRA for a working grandchild.
If a grandchild has earned income, you can gift money that they contribute to a Roth IRA (up to their earned income and the annual limit). This is a powerful long-term gift for a grandchild who has a job, giving them decades of tax-free growth.
Trusts.
For larger or more complex gifting goals — controlling how and when money is used over time, protecting assets, or coordinating with the broader estate plan — a trust may be appropriate. Trusts add cost and complexity but offer control and customization the standard accounts don't. This is squarely estate-attorney territory.
Contributions to existing accounts.
Grandparents can often contribute to a 529 or other account the parents have already established, rather than opening a separate one — sometimes the simplest way to help.
For Columbus-area grandparents, these alternatives — especially direct tuition payment and, for larger goals, trusts — are worth considering alongside the three main accounts.
How to Choose the Right Approach
Pulling it together, the choice comes down to matching the method to your goal.
Start with the goal:
- If your goal is education → the 529 is usually the natural fit, with its tax-free education growth and grandparent control (plus, for direct tuition, the unlimited gift-tax-free payment option)
- If your goal is a flexible, general-purpose gift → the UTMA offers maximum flexibility, if you're comfortable with the child controlling it at majority
- If your goal is a very long-term, retirement-style head start → the Trump account is the new option built for that horizon
- If your goal is complex or you want ongoing control → a trust may be the right tool
Then weigh the key factors:
- How much control do you want to keep, and for how long?
- Are you comfortable with the gift being irrevocable?
- What are the tax implications, now and later?
- Does financial aid matter for this grandchild?
- How does this fit your own estate and tax plan?
Consider using more than one:
Many grandparents don't choose just one. A 529 for education, a Trump account for a long-term head start, and direct tuition payments later can all work together, each serving a different purpose. The tools aren't mutually exclusive.
Coordinate with the bigger picture:
Gifting to grandchildren connects to your own estate plan, your tax picture, and your overall financial goals. The most effective gifting is done as part of a coordinated plan — not as a series of one-off decisions. This is especially true for larger gifts, where the estate planning and gift tax dimensions matter more.
For Columbus-area grandparents, working through these decisions with a financial advisor, a tax professional, and (for larger or trust-based gifting) an estate attorney helps ensure the gifts accomplish what you intend and fit your broader plan.
Frequently Asked Questions
What's the best way for grandparents to give money to grandchildren?
There's no single best way — it depends on your goal. A 529 plan is best for education with grandparent control; a UTMA is best for flexible, general-purpose gifts (though the child controls it at the age of majority); and a Trump account is best for long-term, retirement-style savings. Many grandparents use more than one to serve different goals.
What is a 529 plan?
A 529 plan is a tax-advantaged education savings account. Contributions grow tax-free, and withdrawals are tax-free for qualified education expenses. The grandparent (as account owner) keeps control, can change the beneficiary, and — for Ohio residents using Ohio's plan — may receive a state tax deduction. It's the most popular vehicle for education-focused gifting.
What is a UTMA account?
A UTMA (Uniform Transfers to Minors Act) account is a custodial account held for a minor. It's the most flexible in use — the money can go toward anything that benefits the child. The trade-offs are that the gift is irrevocable and the child gains full control of the money at the age of majority (up to 21 in Ohio under certain provisions).
What is a Trump account?
A Trump account is a new type of children's traditional IRA created under 2025 federal legislation, designed for long-term savings. It's available to children under 18 with a Social Security number, allows up to $5,000 per year in combined contributions, and grows tax-deferred. Children born 2025–2028 may receive a one-time $1,000 government contribution. Funds are generally locked until age 18, when the account becomes a traditional IRA.
Can grandparents contribute to a Trump account?
Yes. Grandparents, parents, other individuals, employers, and certain entities can contribute to a child's Trump account. Contributions from individuals like grandparents are made with after-tax dollars, count toward the combined $5,000 annual limit, and create basis (meaning that portion comes back out tax-free later). Keeping records of your contributions matters for the tax treatment.
Does gifting to grandchildren trigger gift tax?
Usually not. The annual gift tax exclusion allows you to give up to a set amount per grandchild per year with no gift tax consequences. Gifts above that count against a much larger lifetime exemption rather than triggering immediate tax. For most families, no gift tax is ever actually owed. The specific amounts change annually, so confirm current figures with a tax professional.
How does gifting affect a grandchild's financial aid?
It depends on the vehicle. UTMA accounts are generally counted as the student's assets, which can reduce aid more. Grandparent-owned 529 plans have been treated more favorably under recent aid rule changes. Trump accounts, being new retirement accounts, may be treated differently. If financial aid matters, confirm the current treatment of each option.
Can I pay my grandchild's college tuition directly?
Yes, and it's one of the most powerful options. Paying tuition directly to the educational institution is not subject to the annual gift tax exclusion limit at all — it's an unlimited, gift-tax-free way to help with education. The same applies to medical expenses paid directly to the provider.
Which option lets me keep the most control?
The 529 plan lets the grandparent (as account owner) retain the most control — you decide when and how the money is used and can change the beneficiary. UTMA and Trump accounts both transfer control to the child at a set age (the age of majority for a UTMA, 18 for a Trump account).
Should I use one account or several?
Many grandparents use several, matching each to a different goal — a 529 for education, a Trump account for a long-term head start, direct tuition payments later. The accounts aren't mutually exclusive, and using more than one can address different goals. A financial advisor can help structure an approach that fits your overall plan.
Do I need professional help with gifting to grandchildren?
For simple gifts within the annual exclusion, often not. But for larger gifts, gifts involving trusts, or gifts with significant tax, estate, or financial aid implications, coordinating with a financial advisor, tax professional, and (where relevant) an estate attorney helps ensure the gifts accomplish what you intend and fit your broader plan.
Match the Gift to the Goal
For Columbus-area grandparents, gifting to grandchildren is one of the more rewarding uses of accumulated wealth — and the way you give can matter as much as the amount. The three main account options each serve a different purpose: the 529 for education, the UTMA for flexible general-purpose gifts, and the new Trump account for long-term, retirement-style savings. Beyond the accounts, direct tuition payments, Roth IRA contributions for working grandchildren, and trusts offer additional ways to give.
The pattern that produces better outcomes: start with what you want the gift to accomplish, match the method to that goal, understand the trade-offs around control, taxes, and financial aid, and coordinate the gifting with your own estate and tax plan rather than treating each gift as a one-off.
The goal isn't to find the single "best" account — it's to choose the approach, or combination of approaches, that accomplishes what you actually want for your grandchildren while fitting the rest of your financial picture.
At Blue Advisors, I help Columbus-area grandparents think through how to gift to grandchildren as part of a coordinated estate and financial plan — matching the method to the goal and coordinating the tax and estate dimensions. Blue Advisors is a fee-only fiduciary registered investment advisory firm based in Columbus, Ohio. I'm not a tax preparation firm or law firm — I work in partnership with my clients' tax professionals and estate attorneys to make sure the gifting fits the full picture.
Schedule a conversation: If you're a Columbus-area grandparent thinking through how to gift to your grandchildren, you can book an introductory call here: calendly.com/jimblue/blue-advisors-meeting.
By James Blue, Fee-Only Advisor | Blue Advisors
James Blue is the founder of Blue Advisors, a fee-only registered investment advisory firm based in Columbus, Ohio, serving retirees, pre-retirees, and busy professionals across Central Ohio and nationally.
This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. The rules governing 529 plans, UTMA custodial accounts, and Trump accounts — including contribution limits, gift and estate tax exclusions, tax treatment, financial aid treatment, and state-level conformity — are complex, change periodically, and depend on individual circumstances. Trump accounts are a newly created account type established under 2025 federal legislation, and the rules and guidance continue to evolve; specific figures and provisions should be verified with current IRS guidance and official sources before acting. Blue Advisors is a fee-only registered investment advisory firm and is not a tax preparation firm or law firm. Readers should consult a qualified tax professional, a financial advisor, and where applicable an estate attorney before making gifting, tax, or estate decisions. The views expressed are those of the author as of the date published and are subject to change without notice. Advisory services are offered only pursuant to a written advisory agreement and to clients in the State of Ohio, the Commonwealth of Pennsylvania, and other jurisdictions where Blue Advisors is properly registered or exempt from registration. Past performance is not indicative of future results. Specific dollar amounts, contribution limits, and tax thresholds have been kept general — consult current guidance and a qualified professional for specifics.