Give
Children Gifts That Bear Long-Term Rewards
Does your
holiday shopping list for the kids include the usual array of trendy clothing,
sports equipment, computer upgrades, and hobby items? Are you looking for
something that might provide long-term financial rewards rather than short-term
boredom relief? With the following holiday gift ideas, you can give your
children and grandchildren a head start on a lifetime of financial security.
Buy
Shares In A Kid-Friendly Company
A great gift
for a school-aged child or teenager is several shares of stock in a company the
child knows and likes. Add a lesson on how to follow the stock's price in the
financial pages and you've given your child not only a meaningful gift, but also
a valuable education in investing. Shares in a mutual fund can provide similar
benefits. Some mutual fund companies even offer funds with portfolio holdings
that are especially geared toward the young investor. These funds generally
accept lower minimum deposits, target long-term growth, and offer kid-friendly
educational materials.
Pay
College Tuition And Medical Expenses
Ordinarily,
you must file a gift tax return when you give a child or grandchild more than
$10,000 in any one year. However, checks written directly to a qualified
educational organization to cover a child's tuition expenses are considered
qualified transfers and, as such, are not subject to the $10,000 limitation.
That means, for example, that if you're feeling incredibly generous, you can pay
your grandchild’s tuition bill and still give him or her a $10,000 gift tax
free. The same ruling holds true for unreimbursed medical expenses you pay on
behalf of your child or grandchild.
Help
Reduce Student Loan Balances
If you're
concerned that giving your child or grandchild a large amount of cash now could
affect his or her eligibility for college financial aid, consider holding off on
your gift until after graduation. If the student did receive aid in the form of
student loans, your gift can help pay off or lower the child's student loan
debt. Otherwise, the money can be used to help set up the graduate's first
apartment.
Make
A Below-Market-Rate Loan
If you would
like to help your child or grandchild with a home purchase, you might consider
making an interest-free or below-market-rate loan to the child. There are
generally no tax consequences if the loan is below $10,000 because it comes
under the gift tax rules. But since larger loans can trigger complex tax
implications, you should first consult a tax professional for advice. Be sure to
draw up a written agreement for any loan you make to your child or grandchild.
Establish
An Ira For Your Child
For a teen
earning money from a part-time job, a regular IRA or Roth IRA is a great way to
encourage saving and initiate a retirement nest egg. If stashing money away in
an IRA is the furthest thing from your young worker's mind -- and it probably is
-- all is not lost. Although tax laws require that a person have earned income
to make an IRA contribution, they don’t require that the contribution be made
with that earned income -- which means your child's or grandchild's IRA
contribution can be funded with a gift from you. You can deposit cash equal to
what the child earns, up to the $2,000 annual limit.
Name
Your Grandchild As Your Beneficiary
If you're a
grandparent with young grandchildren and you're concerned that you may not be
around to help finance college or their first house, consider making your
grandchildren the beneficiaries of a life insurance policy. Concerned about your
grandchild receiving too much money too soon? Arrange for the payout to be put
in trust until the child reaches an age when he or she is likely to be more
financially responsible.
Start
A Personal Finance Library
For older
children preparing to start out on their own, you might consider giving a small
library of personal finance books, a subscription to a personal finance
magazine, or even computer software for budgeting, writing checks, and paying
bills. For newlyweds, two hours of counseling with a financial planner is an
excellent gift that can help the new couple start their future on firm financial
footing.
Contribute
To A ScholarShare Account
Parents and
grandparents can also contribute to a child’s college fund under
California’s new Golden State ScholarShare Trust College Savings Program. This
new tax-deferred college savings program will help California families save in
order to meet future college expenses. Unlike the prepaid tuition plans that
have been in place for many years, the ScholarShare program works more like an
IRA account, whereby earnings build up tax-free until the funds are used for
school. Payouts of income are taxed to students for federal tax purposes. Visit
the ScholarShare Web site at www.csac.ca.gov/scholar/scholar.htm for more
information about this California College savings program.
Depositors
may include parents, grandparents, or anyone who has reached the age of
majority. They may contribute as little as $25 per month, or as much as a lump
sum of the calculated cost of higher education in California (this amount varies
depending on the age of the beneficiary).
Generous
parents and grandparents should keep in mind that, for the most part, once you
make an outright gift of money to a child, legally the money becomes the
property of the child. That means once the child is of legal age, he or she can
decide how to spend it.