It can already be difficult enough as a grandparent deciding on which financial product will help you build a nest egg for your grandchildren, but if they live abroad then navigating the different legislation, fraud, and anti-money laundering rules make saving for grandchildren that much harder.
Rarely will the US banking system allow someone to open an account for a child that is living abroad.
Best Savings Options for Grandchildren Abroad
BEST OVERALL: Vanguard
Best for custodial accounts: Charles Schwab / TD Ameritrade
Best broker for young traders: Acorns
Can I open a savings account for my grandchild who lives abroad?
The simple answer is no. For the reasons I have mentioned above, it isn’t possible to open a children’s savings account unless the child in question has an address in the US or their parents are employed by the United States federal civil service or the armed forces.
Check for existing bank accounts
This might seem obvious but have you checked that your grandchild doesn’t already have a US bank account, opened by a legal guardian, that you can deposit money into? Often parents will set one up before they move abroad. If this is the case then grandparents, as well as friends and family can make regular contributions to the account.
However, be aware that the traditional savings account, while a good way of keeping money safe, is not the best way of growing a nest egg, especially if you factor in the historically low interest rates that would hurt the ability of these savings to grow.
It is worth checking the interest currently being earned on the savings account in question. Currently, some of the best interest rates being offered are by high-yield savings accounts, with SoFi our cream of the crop.
A custodial account is a great way of helping secure a child’s financial future and is a great gift to make. This type of account, established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), is set up by an adult for the benefit of a minor.
Who can open a custodial account?
A custodial account is a financial account that is opened and controlled by someone over 18 for a minor. Traditionally these accounts are set up by a parent for their child, but grandparents, other family members, and even friends can also open a custodial account on behalf of a minor.
How much can you contribute to a custodial account?
The best news about custodial accounts is that not only are they flexible, easy to open and come with tax perks, they also have no contribution or income limits, or withdrawal penalties.
In summary, a custodial account is an extremely flexible and useful way of establishing a financial nest egg for a minor. Best of all, setting up these accounts is incredibly easy, and is much simpler and less expensive to establish than a trust fund. The aim of both the UGMA and UTMA regulations was to provide a tool that would make it easy to transfer assets to minors, without the need for complex trust funds.
A 529 Plan is a tax-advantaged savings account designed to help cover the costs of a child’s education. This is a great way to help save for a child’s future and covers not only higher education but also, as of 2017, K-12 education, and was expanded further in 2019 to include apprenticeship programs. Best of all, the 529 plan does not require that a child lives in the US, or is even a US citizen, as long as a family member who is a US citizen or legal alien changes the 529 plan beneficiary.
Who can open a 529 Plan?
To open the account, you must be a US resident aged 18 or over. As with custodial accounts you do not need to be the child’s parent, or even legal guardian. Grandparents, friends, and extended family can all open an account on behalf of a minor.
How much can you contribute to a 529 Plan?
Similar to a custodial account, there are no limits on how much you can contribute to a 529 account each year. However, many states have put in place a total contribution limit. These limits recently ranged from $235,000 to over $525,000.
529 plans are a solid choice for helping your grandchildren with any future educational costs, and, as we all know, tuition fees are pretty steep. To help sweeten the deal, 529 plan withdrawals are tax-exempt, provided they are used to cover qualified educational costs. There is a large choice of 529 plans available and many brokers offer extremely tempting packages, though these vary from state to state.
Save into a US account in your own name
Another way that you can help contribute financially toward your grandchild’s future is simply by making investments in your own name, which you then pass on to your grandchild in your will. Unfortunately, this would mean that the amount in the account would be subject to inheritance tax.
However, the benefit here is that you could transfer the funds across to the child as you see fit.
Of course, you wouldn’t be able to access the benefits available in a custodial account or a 529 plan when opening an account in your own name. However, you may already have an IRA account that you are planning to pass on to your grandchild.
Use Wise to send money overseas
Wise, formerly TransferWise, allows you to send money overseas with some of the best currency exchange rates available. This means that if your grandchild is not a US resident, you can ask the children’s parents to set up a savings account in their country of residence into which you can make regular contributions using Wise.com.
Wise formerly TransferWise
While this may not be the most cost-effective way, it may mean that your grandchildren can make use of some of the interesting government-backed products in their country of residence, which may offer lucrative ways to save, especially if they are planning on moving overseas permanently.
Ensure you have adequate retirement planning
Do you have enough savings to provide for your retirement? Consult with a financial advisor should you be in any doubt before you gift any money to your grandchildren.
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