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For Individuals & Families

Great financial gifts for kids

By: Kimberly Lankford

Are you looking for gifts for your children, grandchildren, other relatives or friends’ kids that have a lasting impact? Consider these financial gifts. Rather than just writing a check, several new programs make it easy to make gifts to children and young adults that can give them a head start on their financial futures and teach them about saving, investing or giving.

Contribute to a Roth IRA for kids who had a job this year. There’s no minimum age requirement to contribute to a Roth IRA, but you need to have earned income from a job — even if it’s just a summer job or some part-time work after school. Children can contribute up to the amount they earned from working for the year to the Roth IRA, with a $6,000 maximum in 2019. Helping a child contribute to a Roth IRA can be the most powerful financial gift over the long run — the child can withdraw the contributions without taxes or penalties at any time (which can help with a house down payment or other expenses) and can withdraw the earnings tax-free after age 59 ½.

Contributions of any size can help give kids a huge head start on their financial future. If you contribute $2,000 for a child at age 16 and the investments return 7% per year, he or she could have almost $60,000 in the account by age 66 — just from that original $2,000 investment. And an even bigger gift would be to get the child into the savings habit and continue contributing every year. If the child contributes $2,000 every year starting at 16, the account could grow to more than $800,000 by age 66. And the account could be worth well over $1 million if the child boosts the contributions up to the annual IRA limit as his or her income rises. That’s more than $1 million of tax-free money in retirement.

Some brokerage firms, mutual fund companies and banks make it easier than others for minors to open IRA accounts. The parents usually need to fill in extra forms for a custodial Roth IRA. But anyone can give money earmarked for the account — a grandparent could help the parents set up the account and give the child some money to contribute. Just make sure the contributions for the year don’t exceed the amount of money the child earned from working, with the $6,000 maximum in 2019. You have until April 15, 2020, to contribute for 2019.

Contribute to a 529 college-saving plan. Parents with young kids are always looking for help saving for college, and many 529 administrators are making it much easier for grandparents, friends and relatives to contribute to the child’s account. The child can use the money tax-free for college tuition, fees, room and board, a computer, software and other equipment (and up to $10,000 per year can now be used to pay tuition for kindergarten through 12th grade). And you may even get a state income-tax break for your contribution, depending on your state’s rules.

Many 529 plans participate in the Ugift program, which makes it easy for anyone to contribute to the account. Parents get a gift code they can give to family members or friends, who can then contribute online at Ugift.com or write a check. The minimum contribution amount varies by plan, but some are as little as $15. You can print out a gift certificate showing that you made the contribution.

Plans that don’t participate in the Ugift program generally have their own giving programs. For example, the Virginia 529 lets you send a digital gift card or you can buy a gift card for 529 contributions in $50 or $100 denominations at certain Walmart or Target stores. The T. Rowe Price College Savings Plan has the GoTuition gifting portal, where you can create a profile page online then share a custom URL for friends and family to direct deposit into the account.

If you’d like to contribute to a 529 for a family member or friend’s child who already has a 529 account, just ask the parents which state administers the plan (they don’t need to open the account in their own state) and go to the plan’s website to find out about giving money to the account.

Most states offer a state income-tax break for contributing to a 529 plan, but you usually need to contribute to your own state’s plan, and some states only offer a tax break for the account owner. See www.savingforcollege.com for links to each state’s plan and tax rules.

Buy a few shares of stock. This is a great way to start teaching the child about investing, and several new programs make it easy to give shares of stock to anyone, whether they’re your child, grandchild, other relative, or even a friend’s child.

Stockpile.com, for example, offers gift cards and e-cards at retailers such as Target and Walmart, or at Stockpile.com. You can give from $1 to $2,000 and the child can choose from more than 1,000 stocks and track the performance on a kid-friendly app. Trades are 99 cents, and you can buy factional shares.

Closer relatives may want to consider opening a custodial account for the child at a brokerage firm, which can have lower fees and help the child start building an investment portfolio for the future. The custodian controls the account until the child reaches the age of majority (usually 18 to 21, depending on the state), and then the child is in charge of the money after that.

Or you can ask the parents if the child already has a custodial brokerage account, and you can contribute to the account and offer to work together with the child to pick out the stock, which is a great way to teach children about researching investments and following the stock’s performance.

Give them a share of a donor-advised fund. Donor-advised funds are a great way for anyone to make charitable gifts — you contribute now (and can take an income-tax deduction for your contributions, if you itemize) and then you have an unlimited amount of time to decide which charities to support. Donor-advised funds are offered by many brokerage firms and community foundations.

Many parents and grandparents who open a donor-advised fund for their own charitable gifts also use it to teach the next generation about charitable giving. They may work together with their children or grandchildren to decide which charities to support, or they may designate a few hundred dollars for each child to grant to the charity of their choice. They may give the child access to the research tools available through the donor-advised fund, and some families even have an annual family meeting where the kids or grandkids explain how they selected the charity.

Some donor-advised funds make it easy to give family members or friends a certain dollar amount from their donor-advised fund to grant to the charity of their choice. Fidelity Charitable’s Gift4Giving, for example, is like a gift certificate that lets you designate from $50 to $5,000 from your donor-advised fund for anyone to make grants to the charities they choose. The person receives a link in an e-mail that lets them access to that amount of money in your account. They have up to 180 days to make the grants to the charities.

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