Five Financial Gift Giving Tips for the Holidays

December 12th, 2019 by Jim Allen

The holiday season is a time for giving, including gifts of cash. Rather than just giving a check or some dollar bills, you might consider using any of the five ideas listed below. These gift strategies can provide meaningful long term benefits to the gift recipient beyond a couple of trips to Starbucks or a shopping spree at the mall.

College Savings Plans
College savings or “529” plans are a very effective way to save for college. Contributions to the account grow tax deferred, and when spent on qualified college expenses are tax free when withdrawn. This can be a great way for “Grandma” & “Grandpa” to help build up college savings for their grandchildren by making a gift each holiday.

Roth IRAs
For young adults who are working, a gift/contribution to a Roth IRA in their name can be another long term gift giving strategy. As long as the gift recipient has earned income and is below certain income limits, they can contribute up to $6,000 to a Roth IRA each year. While a Roth IRA doesn’t provide any current tax benefits, the account grows tax deferred and funds can be withdrawn tax free after age 59 ½. This is an ideal strategy for the college student who works part-time or for someone who is just starting out in their career. Mom and Dad, (or Grandma and Grandpa) can help their children start saving for retirement in a tax favored manner.

Student Loan Payments
For those recently graduated college students, making a gift to help repay some of their student loan debt can be a much appreciated strategy. Many college students are graduating with mountains of student loan debt, and having a little something applied to those loans during the holidays can reduce the long term interest cost and get the student further down the path to financial freedom.

Cal ABLE Accounts
If you have a child or grandchild who is disabled, a gift to an “ABLE” account could be a smart choice. ABLE (Achieving a Better Life Experience) accounts are similar to college savings plans but are designed for people who were disabled (or blind) before the age of 26. The funds can be used to pay for their expenses related to their disability or to maintain or improve their health, independence or quality of life. The maximum amount that can be contributed to an ABLE account is $15,000 per year without affecting any governmental benefits the disabled person is receiving. The account can also grow to a maximum of $100,000 without impacting government benefits.

Financial Planning Services
For those young adults just starting out in life, one of the best gifts someone could give them is to develop a solid financial plan. Getting sound financial advice about paying off credit card or student loan debt, saving for buying a home or getting started investing can be much appreciated. We often provide financial coaching or counseling advice on an hourly or monthly subscription basis that can be paid for by parents or grandparents.

If you are struggling with what to give your loved ones during this holiday season, consider the gift of one of these, or other financial strategies. Please contact us if you would like more information on any of these topics.