Americans spend an average of $1,000 during the gift-giving season, according to the National Retail Federation. While there’s nothing wrong with the proverbial tie or toy, there are also financial gifts that can literally keep on giving in the form of stocks, bonds, books, cash, college savings accounts and even real estate. Here are options for everyone on your list—from small gestures to more-substantial offerings.
A simple savings account is a gateway to teaching kids critical financial lessons—from wealth accumulation to the power of compound interest. Helping them compare statements from month to month can be its own lesson in financial literacy.
Learn about the Schwab Bank High Yield Investor Savings® Account.
If you want to give a gift of cash that’s also a collector’s item, you might consider annual and special-edition coins from the , the , the United Kingdom’s and others. Cash in this form may or may not appreciate over time, but its tactile, treasure-chest appeal can’t be beat.
College savings accounts
Such accounts can help children and grandchildren graduate from college with little to no debt burden—an important consideration as . Specifically:
- 529 college savings plans provide federal tax-free growth and tax-free withdrawals for qualified expenses (including K-12 tuition in some states). Some states even offer tax credits or deductions for contributions to their 529 plans.
- Coverdell Education Savings Accounts provide federal tax-free growth and tax-free withdrawals for qualified expenses (including not just tuition but also school supplies, uniforms, and even room and board). To contribute to such an account, your modified adjusted gross income must be less than $110,000 ($220,000 for married couples) and total account contributions must not exceed $2,000 per beneficiary in 2018.1 Contributions to Coverdells are not tax-deductible.
Compare college savings accounts.
A classic gift for children, savings bonds are a great way to teach discipline and patience in investing. There are two main options:
- EE bonds earn a fixed rate of interest for up to 30 years, making them attractive during periods of low inflation or even deflation.
- I bonds earn a fixed rate of interest—plus an additional inflation-adjusted rate that is revisited semiannually, which can help protect young investors if inflation increases.
Gains from all savings bonds are exempt from state and local income taxes—and may be free from federal taxes when the bonds are used for qualified higher-education expenses. Savings bonds are no longer sold at financial institutions but can be purchased online at treasurydirect.gov. Paper I bonds can be bought only with a refund from a federal tax return. The minimum purchase is $25 for electronic EE and I bonds and $50 for paper I bonds.
Bonds and stocks
Individual fixed income and equity investments are an opportunity to educate the next generation of investors. Of course, there’s no telling whether the bond or stock you give will rise or fall in value, but what such gifts can offer is a first-hand lesson in the market’s inner workings.
Alternatively, shares in an exchange-traded fund (ETF) or mutual fund provide access to a broad basket of securities that can begin to teach the considerable benefits of diversification.
In order to gift investment assets to a minor, you must first establish a custodial brokerage account on her or his behalf. There are two types of custodial accounts: a UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act).
The two account types are largely the same, though contributions to UGMA accounts are limited to cash, insurance policies and securities (such as stocks, bonds or mutual funds), whereas you can contribute virtually any kind of asset to a UTMA account, including real estate.
The availability of the two account types varies by state, as does the age at which the beneficiary may take control (typically 18 or 21). Contributions to both account types are considered “irrevocable”—meaning they belong to the beneficiary and cannot be reclaimed.
Learn about the Schwab One® Custodial Account.
Family and friends can indirectly contribute to the Individual Retirement Account (IRA) of another person, though the recipient must have earned income equal to or greater than the contribution and must make the deposit her- or himself. In 2018, the contribution limit is $5,500 (plus another $1,000 for those age 50 or over).
That said, parents can establish and fund a custodial IRA for a child, assuming he or she has earned income equal to or greater than the contribution. Of the two main IRAs—traditional and Roth—the latter might make more sense for children, who are unlikely to meet the ROTH IRA income limitations and whose long investment horizons make the tax-free withdrawals in retirement2 all the more beneficial (see “Leave It to Beaver”).
Learn about the Schwab Custodial IRA.
“A shortage of available homes has driven up prices—particularly among starter homes that tend to fall within first-time buyers’ budgets,” reports CNN Money.3 Those with the resources to help a loved one with a down payment are subject to the annual $15,000 gift-tax-exemption limit ($30,000 for married couples); anything over those amounts counts against .
1The maximum contribution to a Coverdell Education Savings Account begins to phase out at a modified adjusted gross income of $95,000 ($190,000 for married couples filing jointly) and phases out entirely at a modified adjusted gross income of $110,000 ($220,000 for married couples filing jointly).
2Account holder must be at least age 591/2 and have owned the account for at least five years.
3Kathryn Vasel,“The Struggle Is Real for Millennial Homebuyers,” 04/03/2017.
What You Can Do Next
Schwab clients: a family member or friend and they can get $100.