To leave retirement savings to grandchildren, name them as IRA or 401(k) beneficiaries, consider Roth IRA conversions to reduce taxes, use trusts for control, and spread withdrawals over the 10-year rule.

A lot of grandparents want to leave money to their grandchildren and help the next generation get a strong start, whether that means funding education, helping with a first home, or simply giving them a financial cushion.

The tricky part is how you leave the money matters just as much as the amount.

Start With Your Estate Plan

The first step is surprisingly simple: make sure your grandchildren are clearly included in your estate plan.

That usually means updating:

• your will or trust
• beneficiary forms on retirement accounts
• life insurance beneficiaries
• investment accounts

One thing people sometimes overlook is that beneficiary forms override wills. So if your IRA still lists someone else, that’s where the money will go, regardless of what the will says.

If your grandchildren are still minors, many advisors recommend using a trust instead of leaving money outright.

Why? Because a trust allows you to control when and how money is used.

For example, you might say:

• Funds can be used for education
• partial distributions at ages 25 and 30
• additional funds for buying a home

Without a trust, the money may legally become the child’s at 18–21, depending on the account type.

Retirement Accounts: Where Taxes Matter Most

Retirement accounts like IRAs and 401(k)s are often the largest assets grandparents pass down.

These accounts have an important feature: they transfer directly to beneficiaries, meaning they usually avoid probate.

However, the rules changed significantly with the **SECURE Act.

Before 2020, heirs could stretch withdrawals over their lifetime. Now, most non-spouse beneficiaries, including grandchildren, must empty the account within 10 years of the original owner’s death.

In practice, that means your grandchild may need to withdraw large sums within a decade. Those withdrawals from a traditional IRA or 401(k) are taxed as income.

Financial advisors sometimes describe this situation pretty bluntly: inheriting a large traditional IRA can become a major tax burden if the withdrawals push the beneficiary into higher tax brackets.

Why Roth Conversions Can Help

Because of that 10-year rule, many planners recommend considering Roth conversions.

A Roth conversion means:

1. You pay taxes now when converting the account.
2. Your heirs withdraw the funds later, tax-free.

From a legacy perspective, this can make a big difference.

Instead of grandchildren inheriting a large taxable account, they inherit a pool of tax-free money.

Of course, Roth conversions aren’t right for every situation; the timing and tax bracket matter, which is why people usually talk through the details with a tax professional first.

How to Give Money During Your Lifetime to Your Grandchildren?

Another approach many grandparents take is gradually gifting money while they’re still alive.

This can reduce the size of your taxable estate while helping your grandchildren sooner.

Annual gifts

You can give up to $19,000 per person per year (2025–2026 limit) without triggering the federal gift tax.

Married couples can combine this, meaning $38,000 per grandchild per year.

Paying education or medical bills directly

Payments made directly to schools or medical providers are generally unlimited and do not count against the gift limit.

This is one of the easiest ways to help with big expenses.

529 College Savings Plans

Many grandparents also choose to fund 529 college savings plans.

These accounts have two big advantages:

1. Investments grow tax-free.
2. Withdrawals are tax-free if used for education.

There’s also a unique feature known as “super-funding.”

You can contribute up to five years’ worth of gifts at once.

For example, one grandparent could contribute around $95,000 in a single year to a grandchild’s 529 plan (or about $190,000 for married couples) while still staying within gift-tax rules.

That’s a powerful way to move money out of your estate while giving education savings a major boost.

Open a Custodial Account

Another option is opening a custodial investment account (UGMA or UTMA).

These accounts allow you to invest money on behalf of a grandchild.

They’re simple and flexible, but there’s an important trade-off:

Once the child reaches adulthood (usually 18–21), they gain full control of the account.

So if you want long-term control over how money is used, a trust may be the better option.

Will Grandchildren Owe Taxes on an Inheritance?

In most cases, inheritances themselves are not taxed as income.

But taxes can apply later, depending on the type of asset.

For example, withdrawals from traditional IRAs or 401(k)s are taxable. Investment gains from inherited assets can trigger capital gains tax.

Butt, Roth IRA withdrawals are generally tax-free.

There’s also no separate federal inheritance tax for grandchildren.

Instead, taxes, if any, are handled through the estate tax system.

Estate and Generation-Skipping Taxes

For larger estates, there is another concept worth knowing: the generation-skipping transfer tax (GST tax).

This tax can apply when assets skip a generation, for example, going directly from grandparents to grandchildren.

However, the exemption amounts are extremely high.

In 2026, individuals can generally transfer about $15 million without triggering federal estate tax or GST tax.

Because of those thresholds, most families never encounter these taxes, though large estates sometimes use specialized “dynasty trusts” to plan around them.

What Would I Have Done If I Were Your Grandpa?

For grandparents who hope their savings will one day help their grandchildren, the best approach is usually not one big decision, but a few careful steps taken with the future in mind.

Many families find it helpful to think about a plan that includes things like:

• Updating beneficiary forms on retirement accounts, so assets go exactly where they’re intended
• Converting some traditional retirement savings to Roth accounts, which can sometimes make things easier tax-wise for the next generation
• Setting aside money in a 529 plan to help with future education
• Making small annual gifts while you’re still around to see the joy it brings
• Using trusts for larger inheritances, so the money is protected and distributed thoughtfully

The exact combination will always depend on each family’s financial situation and personal goals. No two families are exactly the same, and good planning respects that.

But the guiding idea is a simple one, many grandparents already understand well: a little care today can spare your family a lot of difficulty tomorrow.

When things are arranged properly, grandchildren receive more than just money. They receive a carefully prepared head start, one that avoids unnecessary taxes, reduces complications, and helps make life a little easier when they begin building their own future.

And for many grandparents, there’s quiet comfort in knowing that even years from now, a small part of their care and foresight will still be looking after the family they love.