The holiday season is a time for joy and giving. While kids love unwrapping those colorfully packaged gifts, why not consider a present that extends its value way past the holidays?

Financial gifts can be a fantastic way to set up the younger ones for future success, and they might even offer you a tax benefit. These gifts may not come with shiny bows, but their long-term value is undeniable. Let’s explore some smart financial gifting options for this holiday season.

529 College Savings Plans

We all know how expensive education has become. The student loan crisis has highlighted the need for alternative solutions. A 529 savings plan is an excellent way to start funding a child’s education. These are state-sponsored investment plans, quite similar to 401(k)s, where your contributions are invested for long-term growth. Plus, there’s an option for prepaid tuition plans to lock in current rates. The best part? While your initial investment isn’t federally tax-deductible, the growth is tax-deferred, and withdrawals for educational purposes are tax-free. Some states even offer deductions on your initial investment.

Gifting Stocks: A Generous and Smart Investment

Gifting stocks is a fantastic way to pass on your investments to loved ones. By transferring your own stock shares, you’re not just giving a present; you’re sharing a piece of your financial legacy. The recipient of these shares can reap the benefits of any dividends the stocks might yield and has the option to sell them in the future, potentially at a higher value. This can be particularly valuable for younger family members as it introduces them to the world of investments and can contribute to their long-term financial health. The process usually involves coordinating with your broker or financial advisor to ensure the transfer is smooth and complies with all necessary regulations.

Savings Bonds: The Gift of Future Security

Savings bonds are another excellent gift option, especially for those looking for a more secure, long-term investment for their loved ones. Purchasing savings bonds has been made incredibly easy and can be done entirely online through the Treasury website. These bonds are essentially loans to the government, and in return, they pay interest over time. They can be purchased in denominations ranging from $25 to $10,000 and typically mature over a period of three years, although they can continue to accrue interest for up to 30 years. To purchase a bond as a gift, you’ll need the recipient’s Social Security number, and if they are a minor, a parent or guardian must set up a Treasury Direct account with a Minor Linked Account to hold the bonds. This is a thoughtful gift that can help secure the recipient’s financial future, providing them with a nest egg that grows over time.

And good old cash? Always welcome. For larger sums, consider setting up a trust or a dedicated account that matures when the recipient is older.

A Quick Note on Gift Tax

For 2023, you can give up to $18,000 per person without incurring gift tax. This applies to 529 contributions, bond purchases, or any financial gift. If you’re planning to transfer stocks, be mindful of any related rules and regulations.

We Can Help!

We discuss gifting strategies with all our clients. Start by booking a Peace of Mind Planning Session. This is a 1-hour meeting that can happen in person or via Zoom. You’ll fill out a questionnaire before we meet, and we’ll answer all your questions and talk about our packages and flat fees. Mention this blog post and we’ll waive the $350 session fee! Limited spots available. Book today by HERE.

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