Giving the gift of financial well-being at the holidays
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Instead of the latest toy or gadget, some people are trying to give their loved ones more financial security this holiday season.
While it's long been possible to hand out cash, buy stock or contribute to college savings plans, financial institutions and retailers are making it easier to bestow a gift with lasting value.
Among them is Stockpile, a company that sells gift cards that can be redeemed for stock, which is rolling its products out to more than 14,000 stores this holiday season after seeing success at other retailers. College savings plan administrators, which see contributions peak at the holidays, have been adding new ways to donate. And Gift of College, which helps people to contribute to college savings plans or pay down student loans, began selling gift cards at Toys R Us and Babies R Us nationally this month.
"It's easy to do and you don't have to worry about a toy breaking, you don't have to worry about batteries and you don't have to worry about the latest trend," said Young Boozer, chairman of the College Savings Plans Network.
Financial gifts can be tricky, though — givers need to be aware of the tax and social implications.
Ann Coulsen, an assistant professor at Kansas State's Institute of Personal Financial Planning, called such gifts a "wonderful and practical idea." But a recipient who wants something "now" might not appreciate it, she said. It may take some explanation of how stocks or savings plans work. And if money causes resentment within a family, it may not be worth it.
Here's a look at the ins and outs of some popular financial gifts:
Cash is easy to get and easy to give, but it doesn't build value the way other options do. And for a large gift, be aware of the tax rules.
Giving a small amount of money each year is a common estate planning tool, but gifts from one person to another are capped by the IRS at $14,000 a year. Anything above that needs to be reported by the giver on their taxes and is subject to gift and estate taxes.
You may want to consider taking that cash and putting it in IRA, mutual fund or other longer-term investment.
A popular suggestion by financial planners for gifts to young children is contributing to a college savings plan.
"Grandparents, for the love of Santa, ask your kids if they have a 529 account set up for your grandchildren," said Kristin Sullivan, a financial planner in Denver. "If yes, offer to put some money into that and put something small under the tree for the kiddos. If no, offer to set one up with some small seed money."
529 college savings plans grow tax-free, and withdrawals for educational expenses are also untaxed. The giver may get a tax break as well. Thirty-four states and the District of Columbia offer either a state income tax deduction or tax credits for those contributions. And nearly all plans allow contributions online or by check, said Boozer.
Craig Larson, of Apple Valley, Minnesota, welcomed his first grandchild a few months ago and is planning to open a college savings account for her this Christmas.
"I've already spoiled this poor little girl to death," he said. "This is something tangible that is not going to end up under the bed or lost at the beach, and she'll be able to see it growing."
To give you either need to establish a savings plan or contribute to an existing one, which requires knowing a few personal details. There are also third-party options that require less legwork.
Gift of College, for one, lets people contribute to a college savings account online or by buying a gift card in stores that can be used for a contribution to 91 different 529 plans. These outside services do come with fees and other limitations, so Boozer suggests closely reading the fine print.
—STUDENT LOAN PAYMENTS
The average debt at graduation for a bachelor's degree was $35,000 last year, so a worthwhile gift for many young people may be helping pay that down.
A check will suffice or you can pay the lender directly. Gift of College added student loans to its product lineup, which lets people help pay the loans at a more than a dozen lenders. Founder Wayne Weber said many employers are offering this as a perk for workers.
Giving stock is a way to encourage an interest in investing over the long term.
The giver may avoid the capital gain consequences of cashing in the shares themselves. But the tax implications for the recipient are tricky depending on their age, the value of the stock and more — so it may be worth consulting a professional.
People without brokerage accounts or those who want to start small can even buy stock at the checkout line.
Stockpile, which is sold in about 40 retail chains like Target, Safeway and Kroger, allows someone to buy a gift card for a dollar amount worth of stock, rather than the price for a share. Purchases can be as small as $1. Putting it in gift-card form makes it easier to give stock as a gift, says Dan Schatt, chief commercial officer of Stockpile.
The bulk of Stockpile's customers are people giving gifts to a younger generation — about half of its account holders are under 30. But many companies also buy stock as gifts for employees.
"It's such a society where you are consuming and buying, here is something that is going to last, potentially multiple generations," Schatt said.