Question: My daughter and son-in-law are expecting their first child, and my husband and I want to give some money for the child as a gift. What are my options?

Answer: How exciting to become a grandparent! Congratulations! You have several options, mostly dependent upon what purpose you have in mind for the money.

Do you want to give to the parents for their expenses in raising the child? You can write a check to your daughter and son-in-law. In 2014, there is a gift limit of $14,000, which means if you give over that amount, there are tax consequences, but giving up to $14,000 incurs no tax consequences for you. This gift tax limit applies per person, so if you give $14,000 and your husband gives $14,000, you are still under the limit.

Do you want to give money to the child? Open a custodial account, or ask the parents to open a custodial account and you can contribute to it. We often suggest Vanguard as the brokerage firm, as they have a fairly easy account-opening process and access to a wide range of investments. If you want an easy fund, invest in the Vanguard Star Fund (VGSTX).

Do you want to contribute to the child’s education? Open a 529 account for your grandchild. If you are the owner of the account, the assets that accumulate in this account will not count as the parents’ assets when financial aid is being considered 18 years from now. We’d suggest starting somewhere in the $1,000-$5,000 range or above, as opening an account with less than that amount means the set-up fees are steep in comparison to the amount going into the account itself.

Photo by Dennis Skley used under Flickr Creative Commons License.