It’s hard to come up with good gift ideas, especially over the holidays if you have a lot of people to shop for. Unfortunately, giving money is often viewed less favorably compared to tangible gifts. It’s time to change that. These days, many children, adults, and grandparents don’t really need more stuff. And with a little creativity, it’s possible to give a financial gift that will make a lasting impression for the recipient. If you’re looking for gift ideas for a child, adult, parent, or relative for a holiday, birthday, or special occasion, consider one of these financial or investment gift ideas.
Investment gift ideas for kids
There are several options for the children and teenagers on your list that aren’t toys. For kids, consider opening a 529 college savings account for the benefit of the child. Anyone can open a college savings account for another person. Contributions to the account are made after tax and the money can be invested and grow tax-deferred. If the funds are used for qualifying educational expenses, withdrawals are tax-free.
In 2023, the annual gift tax exclusion is $17,000 per person, increasing $1,000 in 2024. This means friends, relatives, parents, and grandparents can gift this amount (or double for married couples) without dipping into their lifetime exemption.
For non-parents considering this route, consider looping the parents in beforehand. It’s important to avoid over-funding a 529 plan, especially if uncertain about the child’s plans for higher education.
Fortunately, changes to IRS rules in the last few years make it easier to consider 529 plan contributions as gifts due to new flexibility. For one, up to $10,000 per year from a 529 plan can be used to pay tuition at a K-12 private school. And most recently, starting in 2024, some 529 plan beneficiaries will be able to roll excess funds from a college savings account into a Roth IRA in their own name. There are several rules and limitations associated with 529 plan to Roth IRA rollovers to be aware of.
Investment gifts for teenagers
Did you know working teens can contribute to a Roth IRA? As long as a child has earned income, ideally on a W-2, they’re eligible to contribute to an IRA or Roth IRA. The beauty of this strategy is that a parent or relative can make the contribution on behalf of the teen. The maximum that can be invested annually in an IRA is the lesser of the child’s earned income or the annual IRS limit for IRA contributions, which is $6,500 for a child or teen in 2023 and $7,000 in 2024.
If your child is under 18, you will need a custodial Roth IRA. For young workers, a Roth IRA is usually the best way to supercharge retirement savings and help expose teens to investing. Since they’re likely in the lowest tax bracket, pre-tax contributions have little (if any) benefit. After-tax Roth savings also grow tax-deferred and can be tapped tax-free in retirement.
As a gift, the main aspect to keep in mind is the contribution limit is based on the individual. Therefore, it’s important to coordinate with the parents as IRA contributions must be aggregated.
Financial gifts for college-aged kids
College is expensive. But it’s also a terrific opportunity to support young adults in college and their families. Here are some ideas.
- Consider making tuition payments directly to the college or university. Direct payments to the education institution do not count as a gift, so you won’t need to worry about the annual gift exclusion. Again, coordinate with the parents and/or student directly.
- Buying a gift card to the bookstore to offset the cost of textbooks. Many students are using online materials now, so you may want to consider a textbook voucher until you know their access options and preferences.
- Is the student applying for an internship or full-time job? Depending on their field of study, entering the professional world might require a new wardrobe (at least from the waist up!). Consider taking the student shopping, buying a gift card to a store with professional attire, or buying a general prepaid card for this purpose.
- As a graduation gift or to help the student get to a new job, depending on your gifting goals, you could also consider helping with a car purchase.
- Funding a Roth IRA as explained above. Once they get a full-time job with benefits, you can even consider coordinating to match their 401(k) contributions in an IRA.
Financial gifts for adults
Families often have a range of financial situations and means. Depending on your family’s circumstances, there are options to consider for financial gifts.
If you have a sibling or relative that is struggling financially, consider making a meaningful gift that approaches it head-on. Conversations about money can be difficult, and people may hesitate to ask for help. But that doesn’t mean they don’t need it. Some major financial stress-relieving gifts include: mortgage payments, credit card payments, daycare and tuition payments, and student loan payments.
Credit card debt is extremely difficult to pull out of. With credit card APRs well north of 20%, carrying a balance can leave borrowers in a quick hole. Financial outlays during the holidays add to the money stress.
Alternatively, for individuals looking to buy their first home, consider helping with a lump sum towards a down payment. As with any gifting strategy, be sure to speak with your financial and tax advisor first to understand the any tax implications from your gift.
There are also gift ideas for adults who aren’t struggling financially. Regardless of means, some people will never splurge on themselves. Whether it’s a vacation or just a fancy dinner, consider an experience the recipient would enjoy that they wouldn’t buy for themselves. Getting the whole family together for a trip can create lasting memories for everyone.
Money can be the most thoughtful gift of all
It’s easy to buy stuff online. But giving a financial or investment-related gift takes a lot of thought, and sometimes time and coordination, too. Don’t be afraid to let the recipient in on the idea when needed, either. Some of the financial gift ideas can’t be a surprise – and that’s ok. It doesn’t detract from the thoughtfulness or the lasting impact the gift can have.
Article written by Darrow Wealth Management President Kristin McKenna, CFP® and originally appeared on Forbes.