Lone Tree, Colorado
Tax Planning Strategies · by generation
Diagnosis: three generations, one family, and money that is going to move between them whether or not anyone plans it.
Prognosis: excellent. Almost every move between generations has a tax-cheap way and a tax-expensive way, and the difference is in the timing and the account, not the amount.
There is no cure for income tax. These are the therapies.
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A family does its tax planning on three returns at once. The grandparents’ return decides what passes down and when: by gift, by inheritance, or through a charity. The parents’ return is where the deductions live, because they are the ones with wages. The children’s returns, when they exist at all, are the longest compounding runway in the family and the one most often left empty. Planning by generation means asking, for each dollar, whose return it should land on and in what kind of account, and the answer is usually not the return it is sitting on now.
The page runs from oldest to youngest: the giving generation first, the earning generation second, the new one last. New in the children’s section is the Trump account, the federal deposit for a baby born 2025 through 2028, which is worth taking and worth comparing before any more money goes in. The contraindications at the end are for the preparers: the places where a move on one generation’s return changes a figure on another’s.
The grandparents: the giving generation
Dose for 2026: $19,000 to any one person, from each giver, with no return and no tax; a married couple gives $38,000 to each child, grandchild or in-law. Tuition paid straight to the school and medical bills paid straight to the provider do not count against the $19,000 at all, in any amount. Gifts above the exclusion use part of the $15 million lifetime exemption and require Form 709, but no tax is due until the $15 million is gone.
The exclusion is per recipient, per year, and it resets every January 1. Grandparents with four grandchildren and two married children can move $228,000 a year to the family with no paperwork, and a December gift followed by a January gift doubles it. The direct-payment rule is the one families miss: a grandparent who writes the $40,000 tuition check to the university has made no taxable gift, and can still hand the student $19,000 on top. Write the check to the student instead and $21,000 of it goes on a Form 709.
Gifts are not income to the recipient and not deductible to the giver, under any circumstances. The planning is in what is given (next therapy) and in the account it lands in (the children’s section). The lifetime exemption is now permanent at $15 million and indexed, which takes the federal estate tax off the table for almost every family on this page; Colorado has no estate tax and no inheritance tax, so for a Colorado family the gift decisions on this page are income tax decisions only.
↑ Back to topDose: appreciated stock given to a person carries the giver’s basis with it, so the gain is only moved, not erased. Appreciated stock given to a charity is deducted at full value and the gain is never taxed by anyone. Appreciated property held until death gets a new basis equal to its value on that date, and the gain disappears. So: cash and high-basis assets to the children, low-basis winners to charity or to the heirs by will, and the house to nobody while you are alive.
The common mistake is the generous one: the grandparent gives the children the stock that has done best, because it feels like the most valuable gift. It is the most expensive. A $100,000 position bought for $10,000 and given to a child in the 15% bracket costs the family $13,500 when sold; the same position held until death and inherited is sold the next day for nothing. Give the children the cash, or the bond fund, or the stock bought last year; give the winner to the donor-advised fund, or keep it.
The house is the largest version of the same rule. A parent who adds a child to the deed has given away half the basis, half the $250,000 home sale exclusion, and half the step-up, usually to avoid probate that a Colorado beneficiary deed would have avoided for the cost of a recording fee. The step-up is also the reason an elderly parent should not be talked into selling a long-held rental to “simplify things”: the simplification costs the heirs the tax on every dollar of depreciation and appreciation since purchase.
↑ Back to topDose for 2026: up to $111,000 per IRA owner, sent directly from the IRA to the charity, excluded from income entirely and counted toward the required minimum distribution. A one-time election of about $55,000 can fund a charitable gift annuity or remainder trust the same way (verify 2026 figures). Available from age 70½, two and a half years before RMDs begin.
For a grandparent who gives to church or charity anyway and takes the standard deduction, which is most of them, the QCD is the only way that giving reduces tax at all, and it reduces it from the top: the excluded dollars never enter adjusted gross income, so they also stay out of the formula that taxes Social Security, out of the Medicare premium calculation, and out of the senior deduction phase-out. A $10,000 QCD by a retiree in the 22% bracket with Social Security in the picture saves closer to $4,000 than $2,200.
It is also the right source for the family’s charitable giving. If the children tithe from wages and the grandparents have an IRA they do not need, the family pays less tax when the grandparents give and the children keep their cash; the children can repay it as the $19,000 gift above goes the other way. The check must go from the custodian to the charity; a distribution to the owner that is then donated is ordinary income with a deduction the owner probably cannot use.
↑ Back to topDose: a traditional IRA inherited by a child must be emptied within ten years, and every dollar is ordinary income on the child’s return, usually in the child’s highest-earning decade. A Roth inherited by the same child is also emptied in ten years but tax-free. So the parent in the 12% or 22% bracket converts what the child would otherwise withdraw at 32% or 35%, and the family keeps the difference.
This changes the question from “will I be in a higher bracket in retirement” to “whose bracket will this money finally be taxed in.” A retired couple with $600,000 in traditional IRAs, Social Security, and a pension that keeps them in the 12% bracket until the RMDs start will, if they do nothing, leave the IRA to a son who is 55 and at the top of his career; he will add $60,000 a year to a $250,000 salary for a decade. Converting $40,000 a year at 12% to 22% for ten years moves most of it to the Roth at roughly half the rate the son would pay, and the Roth has no RMDs while the parents live.
The limits are the usual ones: the conversion raises this year’s income, so it is done up to a bracket line and under the Medicare surcharge tier, and the tax is paid from a taxable account. The window is the same one the near-retirement page describes, from the last paycheck to the first RMD; the heirs are one more reason to use it. Colorado adds a sweetener: each spouse 55 to 64 subtracts up to $20,000 of retirement income from Colorado taxable income and each spouse 65 and over up to $24,000, and a Roth conversion is retirement income for that purpose, so the first $40,000 to $48,000 of a couple’s annual conversion is taxed only by the IRS.
↑ Back to topDose for 2026: $95,000 per grandchild from one grandparent, $190,000 from two, put into a 529 in one year and treated as five years of $19,000 gifts on Form 709; no gift tax, no use of the lifetime exemption, and the account grows tax-free from day one. A grandparent-owned 529 is no longer reported on the FAFSA and distributions from it no longer count as the student’s income under the 2024 rules.
A newborn’s 529 funded with $95,000 and left alone for eighteen years at 6% is about $270,000, all of it available tax-free for tuition, room and board, and since 2026 up to $20,000 a year of K–12 tuition. Whatever is not used can move to the grandchild’s Roth IRA, $35,000 lifetime, after the account is fifteen years old, which turns a college fund that was not needed into a retirement account that was. And a Colorado grandparent who contributes to CollegeInvest, the state’s plan, subtracts the contribution on the grandparent’s own Colorado return, up to $26,200 per beneficiary for a single filer and $39,200 for a couple in 2026, for a grandchild living anywhere.
Keep the account in the grandparent’s name. The FAFSA change made the grandparent-owned 529 the best-positioned account for financial aid, and it keeps control of the money with the person who funded it. If the grandparent dies within the five years, the unused years’ gifts come back into the estate, which matters only to the few families near the $15 million line.
↑ Back to topThe parents: the earning generation
Dose for 2026: 401(k) or 403(b) deferral $24,500 ($8,000 more at 50, $11,250 more at 60–63); IRA $7,500 plus $1,100 at 50; HSA $4,400 single, $8,750 family, plus $1,000 at 55 (verify 2026 figures); dependent care FSA $7,500. Each dollar deferred is a dollar that never appears in adjusted gross income, which is the number every phase-out on this page is measured against.
The parents are the only generation with wages, so they are the only generation whose planning produces deductions rather than moving money around. The order is the employer match first (free money), then the HSA (the only account deductible going in, tax-free growing, and tax-free coming out for medical costs forever), then the rest of the 401(k), then the IRA. A couple at $180,000 who fills a 401(k) and a family HSA takes $33,000 off the top of their income and about $8,000 off their tax, and the dollars go on growing untaxed.
The generational angle is the gift coming the other way. A grandparent’s $19,000 gift to a child who is not maxing a 401(k) is best spent raising the child’s deferral by $19,000: the family gets the gift and a deduction at the child’s rate, and the money lands in an account the grandparent could not have funded directly. The same logic puts the grandparent’s gift into the parent’s HSA before it goes into a savings account.
↑ Back to topDose: in the 10% and 12% brackets (taxable income under $100,800 joint in 2026), contribute Roth: the deduction is worth little now and the tax-free growth is worth a lot later. In the 24% bracket and above, contribute traditional and convert later in a cheaper year. In the 22% bracket, split. The heirs tip the scale toward Roth: a Roth is the one account that passes to the next generation with no tax on anyone’s return.
The rule of thumb is bracket now against bracket later, and for a thirty-year-old the later bracket is unknowable; what is knowable is that a Roth funded at 25 compounds for forty years and is never taxed, and that a traditional account funded at 25 is taxed in full at withdrawal and, if it outlives its owner, on a child’s return within ten years. A young parent in the 12% bracket has no reason to defer; an older parent in the 32% bracket has every reason to.
The 2026 wrinkle is the catch-up rule: anyone 50 or older whose prior-year wages from the employer were over about $150,000 (verify) must make catch-up contributions as Roth. That is not a penalty for this page’s purposes; Roth money in the last working years is exactly what the inheritance planning above wants to create.
↑ Back to topDose for 2026: a child under 18 working in a parent’s sole proprietorship (or a partnership of the two parents) earns wages with no Social Security or Medicare tax to either side, pays no income tax on the first $16,100, gives the parent a deduction at the parent’s rate, and now has earned income, which is the key that opens the custodial Roth in the next section.
A parent in the 24% bracket who pays a 15-year-old $12,000 for real work (filing, inventory, the website, the social media the parent was going to pay someone for anyway) saves about $2,900 of income tax and $1,800 of self-employment tax, the child owes nothing, and $7,500 of the wages can go into a Roth IRA where it has fifty years to grow. The rest can pay for the car insurance the parent was paying anyway, which turns a non-deductible household expense into a deductible wage.
The work has to be real, the pay reasonable for the job, and the paperwork complete: a W-4, a W-2 in January, timesheets, and payroll run through the business account. An S corporation or a partnership with a non-parent partner owes the Social Security and Medicare tax on the wages, which removes about half the benefit; the family management company that some promoters sell to fix this is more structure than most families need. The dependent child’s standard deduction is earned income plus $450, up to the $16,100, so the wages are the deduction.
↑ Back to topThe children: the new generation
Dose: a child born January 1, 2025 through December 31, 2028 with a Social Security number gets a one-time $1,000 deposit from the Treasury into a Trump account, but only if a parent elects it (Form 4547, which can be filed with the 2025 return). Any child under 18 can have an account; parents, grandparents and anyone else may put in up to $5,000 a year combined (indexed after 2027), an employer may contribute up to $2,500 of that tax-free, and contributions begin July 4, 2026. The money goes into a low-cost U.S. stock index fund and grows tax-deferred. Nothing comes out before the year the child turns 18; after that the account follows traditional IRA rules.
Take the $1,000. It is the only part of the program that is free, it compounds for eighteen years in an index fund, and it requires nothing but the election. A baby born in 2026 whose parents file the form has roughly $2,900 at 18 from the deposit alone at 6%, and the family contributed nothing.
Then compare before adding to it. Contributions to a Trump account are after-tax and not deductible, the earnings are taxed as ordinary income when withdrawn, and before 59½ the early-withdrawal penalty applies with the usual IRA exceptions (education, a first home up to $10,000). That is the profile of a non-deductible traditional IRA, which is the least attractive account in the code for a child who has better choices. A 529 funded with the same $5,000 grows tax-free and comes out tax-free for school, with a Colorado subtraction on the way in and a $35,000 rollover to the child’s Roth if it is not needed. A custodial Roth IRA, if the child has earned income, grows tax-free and comes out tax-free forever. The Trump account’s advantages are that it needs no earned income, has no education restriction, and is open to anyone who wants to give; a grandparent who wants to put money in a grandchild’s name with no strings and no 529 paperwork now has a place to do it. For most families the order is: the $1,000 deposit, then the 529 to the state deduction, then the custodial Roth to the child’s wages, then the Trump account with whatever is left.
Two cautions. Employer contributions are a nice benefit but are counted against the child’s $5,000, not on top of it. And a Trump account, like any account in a child’s name, is the child’s money at 18 with no further say from anyone; the kiddie tax does not apply because nothing is distributed until then, but at 18 a nineteen-year-old’s judgment is the only control left.
↑ Back to topDose for 2026: any child with earned income (the payroll above, a summer job, babysitting reported on a return) can have a Roth IRA funded up to the lesser of the wages or $7,500. The child does not have to use the child’s own money; a parent or grandparent can make the contribution as a gift, as long as the child earned at least that much. Contributions come back out any time without tax or penalty; the earnings are tax-free after 59½.
$7,500 a year from 15 through 21, seven contributions, $52,500 in, left alone at 7% until 65, is roughly $1.3 million, none of it ever taxed. There is no other account in the code with that arithmetic, and it is available only while the child is young and only while the child has wages. The family that matches a teenager’s summer earnings into a Roth has done more for that child’s retirement than the child will manage in the first fifteen years of a career.
The custodial Roth is also the family’s most flexible emergency fund: contributions (not earnings) are withdrawable at any time for any reason, and up to $10,000 of earnings can come out penalty-free for a first home. Keep the W-2s and the record of babysitting income; the IRS can ask for proof of the earned income that justified the contribution, and “she helped around the house” is not wages.
↑ Back to topDose for 2026: contributions grow tax-free and come out tax-free for college, trade school, apprenticeships and credential programs, and up to $20,000 a year of K–12 tuition and related expenses; $10,000 lifetime for student loans; $35,000 lifetime to the beneficiary’s Roth IRA after fifteen years. Colorado subtracts contributions to CollegeInvest from state taxable income, up to $26,200 per beneficiary single and $39,200 joint in 2026, worth about 4.4% of the contribution, and anyone who contributes can take it, not just the parent.
Among accounts that need no earned income, the 529 wins on tax for almost every family with a child who will have any education expense, which is almost every family. The beneficiary can be changed to a sibling, a cousin, a parent or a grandchild without tax, so a 529 that outlives one child’s needs becomes the next generation’s. The Colorado subtraction is the reason Colorado families should run tuition through a CollegeInvest account even when it is paid the same month: the deduction applies to the contribution, not the holding period, and the state’s recapture rule reaches only nonqualified withdrawals.
Ownership decides the financial-aid treatment and who controls the money. A parent-owned 529 counts against aid at up to 5.64% of its value; a grandparent-owned one no longer counts at all. An UTMA account, by contrast, counts at 20% and belongs to the child outright at the age of majority. For a family that wants the account controlled by an adult and invisible to the FAFSA, the grandparent-owned 529 is the answer, and the grandparent takes the state deduction.
↑ Back to topDose for 2026: a child’s unearned income (interest, dividends, capital gains, including from an UTMA account) is tax-free up to $1,350, taxed at the child’s own rate on the next $1,350, and taxed at the parents’ rate above $2,700. Applies under 18, and to 18-year-olds and full-time students through 23 whose earned income is not more than half their support. Earned income is never kiddie-taxed, which is why the payroll and the Roth are better than the brokerage account.
The kiddie tax is the reason the old move, putting the stock in the kids’ names to use their brackets, stopped working in 1986, and the reason gifts to children belong in accounts whose income is either tax-free (529, Roth) or deferred until the child is an adult (Trump account). A grandparent’s $19,000 in a custodial brokerage account throwing off $3,000 of dividends is taxed at the parents’ 24%; the same $19,000 in a 529 is taxed at nothing.
The UTMA has a second problem: the money is the child’s at 21 under Colorado’s UTMA, whatever the child’s judgment, and it counts heavily against financial aid in the meantime. UTMA accounts opened years ago can be moved into a 529 (the 529 then belongs to the child, which keeps the aid problem but solves the tax one) or spent on the child’s expenses that a parent is not legally required to provide, before the handover date arrives.
↑ Back to topThe state
Dose: no Colorado estate, inheritance or gift tax at any size; the CollegeInvest subtraction of up to $26,200 single / $39,200 joint per beneficiary in 2026 for any contributor; the pension and annuity subtraction of $20,000 (55–64) or $24,000 (65+) per spouse that shelters the first layer of a Roth conversion; and a beneficiary deed that passes the house outside probate without giving up the step-up or the home sale exclusion.
Colorado makes the three-generation plan simpler than most states do. There is no state death tax to plan around, so the only estate question is the federal $15 million line, which almost no one reaches. The 529 subtraction belongs to whoever writes the check, which puts grandparents, aunts and uncles in the plan. And the retirement subtraction turns the parents’ conversion window into a partly Colorado-free one.
The one Colorado cliff to keep in view is at 55 to 64: in those years all taxable Social Security is subtracted only if federal AGI is $75,000 or less single, $95,000 joint; above the line the subtraction falls back to the $20,000 combined cap. A conversion or a gain-harvesting year by a 62-year-old drawing Social Security can cost several hundred Colorado dollars beyond the federal bill, with the two-year Medicare lookback on top of that. At 65 the Colorado cliff disappears: all taxable Social Security is subtracted at any income.
↑ Back to topIf the child has wages, the Roth IRA first, up to the wages or $7,500. Then the 529, which grows tax-free and gives whoever contributes the Colorado subtraction. Then, for a baby born 2025 through 2028, make sure the $1,000 Trump account election has been filed; after that the Trump account takes up to $5,000 a year with no strings on use. Keep the gift out of a plain brokerage account in the child’s name: the kiddie tax sends the income to your bracket and the FAFSA counts it at 20%.
Almost never. The gift carries her basis to you, so when you sell, you pay tax on every dollar of appreciation since she bought it; if you inherit it instead, the basis steps up to the value at her death and the gain disappears. A Colorado beneficiary deed avoids probate and keeps the step-up, for the cost of recording it. If she needs to protect the house from a nursing home spend-down, that is an elder-law question with its own five-year lookback, and the deed decision should wait for that advice.
For the $1,000 deposit, there is no comparison: it is free, and the 529 does not come with one. For additional money, usually not. The 529 grows and comes out tax-free for school and is deductible in Colorado on the way in; the Trump account’s earnings are taxed as ordinary income when withdrawn and nothing comes out before 18. The Trump account wins when the giver does not want the money tied to education and the child has no wages for a Roth, which describes a grandparent who wants to give without conditions.
Yes; it argues for converting more. Whatever is left in the traditional IRA when you die will be taxed on your children’s returns within ten years, at their rates, probably 32% or higher if they are at peak earnings. Converting now at 12% or 22%, under the Medicare surcharge tier, moves it to the Roth at a rate the children will never see again. Colorado’s $20,000 / $24,000 per-spouse retirement subtraction shelters the first layer from state tax.
Yes, and more than in most states, because Colorado subtracts the contribution from state income (up to $26,200 single / $39,200 joint per beneficiary in 2026) and lets any contributor take it. Growth is tax-free, K–12 tuition and apprenticeships qualify, and leftover funds can move to the child’s Roth IRA.
For the Tax Shop desk · the limits, the elections and the cross-generation interactions behind each therapy
The therapies on this page are mostly not deductions; they are decisions about whose return a dollar lands on and in what account. Made one at a time, each is small. Made together, over the fifteen or twenty years between a child’s birth and the grandparents’ estate, they decide whether the family pays tax on its money once, at the lowest rate anyone in it will ever have, or two or three times at the highest.
Bring the three generations’ returns, or at least the grandparents’ IRA statements, the parents’ pay stubs and plan elections, and the children’s account statements. The gift and 529 decisions are year-end decisions; the Trump account election is a one-time form; the Roth conversion is sized every December. Call 303-734-1040 or stop by the office in Lone Tree. We’ve been reading the footnotes for Douglas County and the Denver area since 1969.
Todd Mata, JD, LLM, CPA · Tax planning at the Tax Shop
Thirty years in tax, from Fortune 500 tax departments to small business owners in Highlands Ranch, and ten years teaching corporate income taxation at Metropolitan State University of Denver. The same kind of planning the big companies get, at the Tax Shop’s prices.
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Figures reflect the 2026 tax year as currently published and are rounded for readability. Items marked (verify) are to be confirmed against IRS or Colorado DOR sources before the figures freeze in December. Published October 28, 2026.