I know that Christmas has passed, but in the spirit of the holiday, I thought I would talk about some financial gifts that you can consider giving throughout the year. Between birthdays, holidays, anniversaries, there are plenty of great opportunities to give gifts during the year, and here are just a few suggestions. I’ll start with gifts for kids, and then move on to gifts for older kids and adults:
- A piggy bank. I know it is simple, but piggy banks, by giving children a place to store money, actually make kids want to learn to save. Make a goal to fill it by the end of the year, and consider rewarding your child with coins throughout the year. At the end of the year, make a big deal about their progress, and count the money with them. This leads me to my next idea…
- A coin sorter. For very little money, you can buy a small machine that counts change for your child electronically. Not only does it encourage savings, but it is much more fun than actually counting your own change!
- Once you have the first two ideas down, think about establishing a savings account in your child's name. They can transfer all the money they save into the account, and then watch it grow (slowly with the current interest rates). Make sure to check on it periodically with them and show them the interest it is earning.
- I know it isn’t as fashionable as it once was, but how about a good old-fashioned US savings bond? They are available from the government on the website www.treasurydirect.gov, and are a great way to give money to a child. They are 2 kinds currently available, I and E bonds. Both are low risk, and while I bonds protect you from inflation, E bonds pay interest based on market rates.
- So far, I have talked about gifts for young children. If you have teens, think about setting them up with a checking account, or a prepaid Visa that you charge with their allowance. Show them how to use it, how to keep track of their purchases, and how to budget and spend their money wisely. If they are not out of money by the end of the month, they may have a natural talent for managing their finances!
- This idea is as much for the parents as it is for the kids, but a donation to a 529 plan is a great gift to anyone with college bound children. This is one that we use in our own family quite frequently, and what better way to reward a child than to give them the gift of tax free growth into a college savings plan?
- If college isn’t necessarily in your child’s future, but you want to give them a financial gift, think about funding a Roth IRA for them. If your child is between the ages of 14 and 30, and has earned income, this could be a way to help them get a jump start on their retirement savings at a young age.
- For those older kids, annual gifting is a great way to give away money with no tax consequences. In 2015, any person can give another person $14,000 per year, which means that any couple can give another couple up to $56,000 per year. This money does not count towards your federal estate tax exemption of $5.43 million, nor does it incur any gift taxes in the year given.
- One thing to be careful of is zero interest rate loans, or loans that are forgiven more than $14,000 per year. These are most likely going to be considered a gift by the IRS. However, with interest rates as low as they are, if you document it properly, low-interest rate loans are acceptable. Make sure you back these up with some paperwork and a repayment schedule to show the IRS in the case of an audit!