Giving the Gift of Getting Started

During the holiday season with all of the new toys and electronics that are out, financial gifts are not always the first thing that comes to mind for kids. However, these financial gifts can often be the most impactful. Whether it be helping set them up for their education down the road or just creating that spark in their minds that teaches then about investing, financial gifts are truly those that pay benefits and reap the rewards down the line. There are many different financial gifts out there, I just simply want to highlight a few that should be at the top of your gifts list.

1.Savings Bonds – Series EE

Although these used to be much more popular a few years ago, they are still something that is given as gifts to help kids get started. Series EE savings bonds earn a fixed rate of interest and are guaranteed to double in price withing 20 years of their issue date. As long as they are used for education the interest is also tax free down the road. These are best suited for young kids so that they have a long runway to grow and compound the interest.

2. Stocks

Stocks can be gifted by transferring stocks that you already own or buy purchasing new shares to gift. If the kid is minor it would be best to open these in a UTMA account, meaning that there is a custodian who helps manage the account until the child is older. This is a great way to teach kids about investing and show them what is really means to own stocks. At some point, if they want to put their own money in the account they could even purchase and own shares of companies that they know and use.

3. Roth IRA

If the child is working and has earned income, this could be a fantastic way to help them start saving for retirement. Being that this is a tax deferred account that will grow for many years and also provide tax free distributions in retirement. If you are a parent who owns a small business, you may be able to make your kids an employee and make regular contributions on their behalf to help get them started.

4. 529 Plan

These accounts are specifically setup to help may for education related expenses. The money is typically invested in stocks, bonds, or mutual funds. The best part about 529’s is that the money grows tax deferred while in the account. As long as the money is used for education related expenses down the road, the withdrawals are also tax free. Gifts to a 529 plan can be a valuable way to support family members as they pursue their education goals.

Coming up with a good holiday gift can be daunting. Financial gifts can be enjoyed by virtually anyone — and you won’t need to worry about buying the wrong size. Just remember that as of 2022, any gift over $16,000 per year per individual may be subject to a federal gift tax.