This week’s Tuesday Tip contains some suggestions for financial gifts for the holidays for your children or grandchildren. Please watch the video below to learn more. If you would like a free review of your current financial situation, please use this link to schedule a free call. You can find an edited transcript below the video.
Hi, Phil Weiss of Apprise Wealth Management here with what I hope you’ll find to be a timely Tuesday tip – some suggestions for financial gifts for the holidays for your children or grandchildren.
1. Contribute to a 529 plan.
The first of this week’s suggested financial gifts for the holidays involves contributing to a 529 plan for your child or your grandchild. There are a few reasons why I think this is a good suggestion.
The benefits of contributing to a 529 plan as a Financial Gift for the Holidays.
a. First, contributing now before your child’s ready to go to school can help make paying for it a lot easier. This way you will start putting money away early, and you get the benefit that comes from letting it grow over time.
b. Second, when you put money into a 529 account, it grows tax-free. Plus, as long as you use it to fund qualified education expenses in the future, it can come out tax-free, too.
c. Third, depending on what state you live in, you might get a state tax deduction for your contribution.
Some people hesitate to use 529 plans because of concerns about what happens if your child doesn’t go to school or gets a scholarship. Fortunately, there are rules for that. If you have money left in a 529 plan, it can go to a Roth IRA. That’s a change that was made by Secure Act 2.0. It allows you to convert up to the annual Roth contribution limit from 529 accounts to the account beneficiary’s Roth IRA in the future. It can take some time to do it, but you can convert at least some of the money in the account to a Roth IRA. You can also think about if the money’s left over, you could pull it out and pay tax on it, or you could contribute it or leave it as a legacy asset for future generations.
2. Give Share(s) of Stock.
As a second financial gift for the holidays, I suggest giving a share or a handful of shares of individual stocks, or maybe even shares of an S&P 500 Index fund. You might ask, “Why?” Saving for the future is important. Time in the market matters more than timing the market. The earlier you can get your children to start, the better off they’re going to be. Plus, contributing now can help get them to start following the market, paying attention, and seeing the benefits that come from the long-term compounding of your funds.
I know I’ve already helped some of my kids with this. One, in particular, he just loved to see how his investment has grown. Fortunately, I happened to buy a for him that’s done quite well, and he loves to see how it’s performed. He also talks often about investing with his friends.
3. Open a Savings or Brokerage account.
For a third potential financial gift for the holidays, you can simply put money into a savings account. Right now, some banks pay reasonable interest rates, at least for online accounts. Or you can put the money into a brokerage account. If your child is under 18, it’s going to have to be a custodial account. But you can at least help your child set up the account. She can help you pick a stock and be included in the process. This can help her to better understand how investing and savings work.
If you’re not comfortable with individual stocks, you can use an S&P 500 Index fund instead. Remember, you want to do what you can to get them used to the idea of investing and saving for the future. You also want them to watch what can happen when money has a chance to grow and compound over time.
4. Open or Fund a Roth IRA.
The last suggestion of this week’s financial gifts for the holidays is to open and/or help fund a Roth IRA. If you have a child who’s working, he or she can contribute up to $6,500 to a Roth IRA this year, provided he or she has $6,500 of earned income (wages or self-employment income). There is an income cap if they are a high earner, but I’m not considering that here. I’m focusing on younger kids or those who are just starting in the workforce and not earning much yet.
You might even offer to match their contributions. Maybe you put in $1,000 if they put in $1,000 or something like that. Or you can fund all of it. It depends on your situation – and theirs.
5. Financial Gifts for the Holidays (Bonus) – Take a Family Vacation
I’d like to add an extra suggestion if you’re in a position to do it. This financial gift for the holidays isn’t directly about the future, but it can have long-term benefits. Perhaps your kids are on their own now, but maybe they can’t afford to take a vacation, or something like that. Think about funding a family trip. Take them with you if they’re willing to go. It’s a great way to keep building those relationships, stay in touch with your kids, and help everybody have a great time.
I hope you find these financial gifts for the holidays helpful. I’ll be back again with my five favorite reads of the week next week. Have a great day.
For women facing new beginnings, giving financial gifts for the holidays can have short- and long-term benefits. Please click here if you have any questions or would like to discuss any of these concepts in more detail.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
