With our economy in such a state of flux, a little austerity on the home front is becoming more of the norm. I am seeing less of the outrageous in gift giving and more of the practical.
Here are some gift ideas that might make sense before year’s end and will be appreciated by those you love for many years to come.
Toys, of course, but you could also establish a 529 education savings plan. The parents will thank you as well. When you open up and fund a 529 plan and make a contribution by year’s end, you get the benefit of deducting the 5 percent state tax from your income on the portion contributed. Also, the plan’s investments grow tax free. To get this deduction, you must use an Illinois-designated plan. I personally like the Illinois Bright Start plan, because it is low cost and offers exchange-traded funds as investment options. You can contribute up to $13,000 ($26,000 for married couples) per student each year.
529 plan contributions are also excluded from an account owner’s estate when the government assesses taxes, making Bright Start an attractive option for grandparents3.
Get them their own brokerage accounts and fund them with enough money to get them started – even with as little as $200. Ask your teenagers to pick three companies that they feel are growing and will do well in the coming years. Try to get them to pick three firms that are in different industries so there is some diversification. Generally, teens are good at picking up-and-coming technology companies, fast food chains and retail. Invest a small amount in each stock, and be sure the statements get mailed or e-mailed to the teens directly. They can watch their stocks perform and will hopefully take an interest in saving and investing for their futures. Many discount brokerage firms offer a limited number of free trades for opening an account so transaction fees for a buy-and-hold account should not be too significant.
Your adult children are struggling to pay off loans, raise families and hold down jobs. They may appreciate a tax-free gift from you. Individuals can generally receive up to $13,000 a year as a gift without getting hit by a federal gift tax. Parents also may use the technique of “gift splitting,” or combining gifts to a child, so that each parent makes a gift of $13,000, which amounts to $26,000 in tax-free gifts.
Your Favorite Charity
Since 2012 has been a good year for the stock market, you may want to give appreciated securities instead of cash. In most cases, you will get the benefit of a tax deduction for the full amount. Even better, consider giving appreciated securities toward a charitable annuity. You get the benefit of a generous deduction up front and a stream of income for the rest of your life. The Advocate Charitable Foundation is now paying 4.7 percent on charitable annuities. That is not bad compared with rates you get elsewhere, and you are helping charity.
Have a wonderful holiday, and I look forward to connecting with you in the New Year!