Gifts to Replenish the Nest EggLauren Young
I did a segment this morning on Retirement Living TV’s Daily Café about gifts that will actually replenish your loved one’s nest eggs. (Some of this advice is my own reporting, and some of it came from an excellent Associated Press story.)
Here are eight recommendations on gifts that keep on giving:
1) COLD, HARD CASH. Times are tough. With the stock market down and unemployment up, some of our loved ones simply need extra cash. Why wait until they ask you for a loan? For estate planning purposes, you can give away $12,000 in cash to each individual in 2008 tax-free. (If you are married, your spouse can separately give away $12,000 to each individual tax-free.)
2) SESSION WITH A FINANCIAL PLANNER. Give the gift of financial security—chances are your loved ones need to get their retirement plan back on track, or maybe they need to get a retirement plan started. Jack Brennan, the chairman of Vanguard Group, once told me he likes to give financial planning sessions to his family members.
Prices vary widely by region. A one-hour session can cost $150 in the Midwest and $500 on the East Coast, so consider combining forces with other family members or friends. Ask the planner to give you something tangible like a gift certificate to put in a box or envelope. The Garrett Planning Network, which features advisers who work on an hourly basis, has certificates starting at $25.
3) SAVINGS BOND. Savings bonds are an ideal way to teach kids about investing. To make the gift more exciting, call ahead and ask if a bank representative can sit down to talk with the child about how savings bonds work. Some banks may even offer a behind-the-scenes tour.
And the actual gift certificates are so pretty—one parent I know actual framed a savings bond for her son as a gift. It’s also wise to offer up a safe place to stash savings bonds—either in a safety deposit box, or even a safe.
4) BROKERAGE ACCOUNT. With all that’s going on in the stock market, another way to help kids learn about investing is to set up a custodial brokerage account.
As with any financial gifts for kids, you’ll need to confer with parents first. In this case, you may have to because you’ll need personal information including the child’s Social Security number. At Charles Schwab, there are no fees for opening an account with as little as $100.
You would have control over a custodial account, but the child could track its performance online. The beneficiary becomes the account holder at age 21 in most states.
Bestowing a brokerage account on adults is trickier, because their signature will be required. This can be addressed by offering to accompany the recipient to open an account and start them off with a small sum of money.
5) ROTH IRA. A good option for young people who are just entering the work force is a Roth IRA. A Roth IRA may be preferable gift to a traditional IRA because withdrawals of contributions (not earnings) are generally tax and penalty free. A single person who earns less than $101,000 can contribute up to $5,000 in 2008. However, traditional IRAs could benefit people who earn more than that since contributions could be tax deductible.
As with brokerage accounts, you’ll need personal information for the beneficiary if you’re opening a custodial account. Beneficiaries also need to earn a paycheck to be eligible.
6) 529 COLLEGE SAVINGS PLAN. Another option is contributing to a 529 college savings plan, which offers significant tax-breaks for educational expenses. If you want to ensure your gift is put toward college, make the check out to the plan.
Grandparents can open an account under their own name to maintain control of the funds. Even better, more than 30 states offer a tax deduction for a 529 investment.
Another way to ensure the money goes into a 529 plan is to send a gift through FreshmanFund.com, which charges a 5 percent fee to facilitate donations to 529 plans. If recipients don’t have a 529 plan set up yet, the site holds the money until they do.
Why it is good for your children or grandchildren or other loved ones: You are saving for their future—and advisers recommend investing now since the stock market is on sale, and you’ve got a long time horizon
To research 529s, my favorite site is SavingforCollege.com, which tracks the performance of 529 plans across the country.
7) CHARITY CHECKS. Charity Checks giving certificates give you get the tax deduction, and then you give the gift to friends or family members and let them decide which of their favorite charities to support. Charity Checks come in various denominations and can be cashed by any one of the more than 800,000 charities in the United States. The certificates can be custom-printed to include a special message, so there is something tangible to give.
8) ORGANIZE A GARAGE SALE. If grandma’s basement (or garage) is impossible to navigate, consider offering your time to organize a yard sale. She can donate the proceeds to her favorite charity, and you can look forward to a clutter-free visit.
Do you have any other ideas to replenish a loved one’s nest egg? Share ‘em!
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.