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As the holiday shopping season kicks into high gear with Cyber Monday, you might want to look for alternatives to expensive toys or physical gifts. Consider another type of gift – a financial gift. There are many ways to give generously beyond a wad of cash or a check inside a greeting card.
Start with a conversation, says Angela Furubotten-LaRosee, chief financial planner at Avea Financial Planning in Richland, Washington. Topics may include credit card management and savings, early career benefits, and managing the financial situation of aging parents or retirement. Also bring what you’ve learned from your mistakes, she suggests.
“Families just don’t talk enough about the good, the bad, and the truth surrounding their own financial situation,” Furubotten-LaRosee said.
Cyber Monday Personal Finance Gifts To Buy Now
Once you talk with your family, you might have a better idea of what constitutes a good gift. Here are some expert suggestions:
Financial planning
You can help a loved one straighten out their finances, plan for the future, and even get their estate in order by hiring a financial advisor or online planner.
“For anyone not already working with a CFP, volunteering time with a CFP is ideal, especially at this time of year, and can help start the new year on a stronger financial footing,” said Melissa Sotudeh. , CFP and Director of Advisory Services. at Halpern Financial, a Washington DC area company.
Estate planning
Estate planning, including wills, preparing health directives, and life insurance can be a particularly helpful gift.
“It’s something most people put off and won’t buy for themselves,” said Mark Struthers, certified financial planner at Minneapolis-based Sona Wealth Advisors.
Life insurance
Life insurance payouts can also be a good gift as part of financial planning at any age, including estate planning, experts note. Helping someone make payments to maintain this protection can be appreciated.
Contribution to a Roth IRA
In 2022, the annual contribution limit is $6,000 per year or $7,000 per year for people age 50 or older, so be mindful of how much you are contributing relative to the one person limit and the previous contributions.
Animal insurance
Animal insurance may be welcome for the right recipient.
“I had people give a certificate to show they bought it and the people who received it loved it,” Struthers says.
Gold
Gold is traditionally considered a hedge against inflation because its value can increase in an unequal economy. For young people looking to diversify their portfolio, it can be meaning of chasing gold as an asset.
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Financial Gifts for Kids
There are several types of accounts that you can open for children that will help them live a financially secure life into adulthood.
Roth IRA Custodian (or Roth IRA for children)
A keeper Roth IRA follows Roth IRA rules with some important caveats. A custodian handles after-tax contributions — typically, a parent, guardian, or grandparent — until the child reaches legal adulthood (18 to 21 depending on the state).
“In order for the child (or anyone) to be able to contribute to a Traditional IRA and/or a Roth IRA, the child must have their own earned income for the contribution year,” said Alicia Reiss, a certified financial planner. (CFP) and owner of virtual business The Business of your Life.
Children don’t need to use their own money to make the contribution, but contributions cannot exceed what the child earned that year, Reiss adds.
529 plan for college
A 529 account operates as an investment account for educational purposes only. Specifics vary by state, and contributions to 529 plans can be tax-advantaged. Funds can only be removed for specific educational purposes or you will face a penalty.
A 529″ plan may be better than the [children’s] Roth since the owner, parent or adult, doesn’t give up control,” Struthers said. “And because it’s parenting specific, it tells the child that you believe they CAN get the grades and CAN get into college.”
Uniform transfer/donation accounts to minors (UTMA/UGMA)
These are investment accounts for children that are transferred to them at the age of majority – 18 in most states but up to 21 in others.
Don’t forget to check the limits and tax rules
It’s important to know the limits of gift and estate tax, notes Brett Spencer, CFP and founder of Boston-based Impact Financial. For 2022, donations over $16,000 (the annual exclusion amount set by the IRS) may be taxable.
It is also useful to know the eligibility limits for financial aid, especially if a young adult is about to complete a Federal Student Financial Aid Application or FAFSA, experts note.
“If a gift is for a grandchild’s education, grandparents may want to hold the account with the child listed as the beneficiary,” Spencer notes. This is because the assets of the parents and the child may be taken into account when calculating eligibility for college financial aid. Grandparents are usually not factored into the equation, he notes.