Question: My granddaughter is graduating from college, and I want to give her a generous gift that helps her build her financial future. Any ideas? --D.L., San Francisco
Answer: One suggestion is to give your granddaughter money to contribute to a Roth IRA. She can stash up to $5,500 a year in a Roth as long as she earns that much from a job, and the money she actually uses to fund the account can be a gift. Starting her on the savings habit early can make a huge difference in her future, says Mari Adam, a certified financial planner in Boca Raton, Fla., who is helping her adult children fund their Roths. If your granddaughter contributes $5,500 every year to a Roth starting at 22, then bumps up annual contributions to $6,500 at age 50, when she becomes eligible for catch-up contributions, then she’ll have $1.5 million in tax-free money by age 65 (assuming a return of 7% per year). She can withdraw contributions without taxes or penalties at any time if she needs the money for, say, a house down payment. All withdrawals, including earnings, are tax-free after age 59½. You can open a no-fee Roth at Schwab, TD Ameritrade or Fidelity.
Other ideas: Some grandparents (and parents) pay off a chunk of student loans. Or you could give her a “professional-start package,” says Adam—a lump sum she can use to cover a professional wardrobe, travel costs for job interviews or a car.
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