Giving With A Purpose
By: Jean-Luc Tahou, MBA, CFPThe holidays were all about sharing and giving. As the financial editor, I decided to eschew a typical article and instead, give out tips on a few financially inclined gifts that can be given throughout the year. I am not only talking about cash, but gifts that contribute to the financial well being on the recipients.
Savings bonds. These make great gifts for younger recipients as they earn interest over time. You have two choices: EE bonds or I bonds. Series EE bonds are bonds that pay a fixed rate of interest for up to 30 years. Series I bonds offer 2 interest rates to reduce the effects of inflation. The first rate is a fixed rate based on the life of the bond; the second interest rate is based on the current inflation rate, which is updated every six months. You can obtain both kind of bonds at any bank, or you can go online at the Treasury Department's website: www.treasurydirect.gov.
Stocks. There is a tax advantage for the giver of those shares. By giving away shares of stock, you also give away your "holding period" - the length of time you have owned the stock. Were the recipient(s) of the gifted stocks to sell them one day after receiving them, they will be taxed on the sale based on the long-term capital gains tax rate, which is 15% and much lower than the typical income tax rate. However, please consult with your tax adviser prior to taking any action.
One Share of Stock. When the recipient is a child or a young adult, this may be their first tangible exposure to a stock and therefore may motivate them to become familiarized with such securities in the future. The following sites offer single shares of stocks: GiveAShare, OneShare, and SingleShare. Companies such as Disney offer kid-friendly certificates with replicas of their favorites characters on the certificate.
Give up to $13,000 in cash to any relative. Such gifts are tax-exempt. The rule states that you can give out up to $13,000 to anyone you want to in a tax year without incurring gift tax penalty. Should your spouse agree to do so, you can both give the same person, for example a niece, $13,000 each for a total of $26,000 tax-free. This is obviously an option for affluent families, but any amount below $13,000 works.
Contribute to an IRA. Make a contribution to a relative's IRA in order to increase their retirement savings. The money can be used to increase the value of the stocks, bonds, or other investments within the account. As of 2010 the maximum amount that can be contributed into a Roth or traditional IRA is $5,000.
Contribute to an Education Savings Account. You can contribute to either a Coverdell education savings account or a 529-tuition plan. This is a gift that keeps on giving as education is for life. Certain limits and guidelines have to be met by the family and this should only be done with their consent.
Give a subscription to a financial magazine or newspaper. Again, in this case the gift of knowledge is priceless. Exposing the recipient to sound financial principles via those publications could have a long-lasting effect on their life.
Give a precious coin. Similar to a share of stock, precious metal coins (Gold, Silver) open the recipient's mind to a specific type of asset and contribute to their financial awareness and development. They also appreciate over time and special edition items do so even faster.
Charitable Donations. There are many sites today that allow you to purchase a gift card in the amount of your choice and gift card recipient will receive an eCard and/or printed certificate with a redemption code (CharityGiftCertificates.org or JustGive.org to name a few) The recipient goes online and can choose one of many charities to donate to. This is the most altruistic gift of the list as it is a selfless one.
The holidays may come and go, but the gifts mentioned above tend to have lasting power, as they remain long after Christmas. They also contribute to the financial education and awareness of the recipients, which can impact their lives for a long time. I sincerely hope that as you give throughout the year that you will find the right gifts for your loved ones among those listed. Just be thoughtful of the individual and the ultimate impact, and then you'll make the right choice.
Happy New Year!
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