During the holiday season and beyond, considering financial gifts can be a thoughtful choice. It offers not only a way to show love and care but also potential tax benefits. Let's explore the various options available.

Unlock the Power of Financial Gifts

Give a cash gift

Cash stands out as one of the most flexible financial gift ideas. Loved ones, being familiar with their financial situations, can make the best use of it. In 2024, you can gift an individual up to ,000 per year without incurring a federal gift tax liability. This annual gift tax exclusion typically increases with inflation. Any amount over this limit counts towards your lifetime federal gift tax exclusion, currently set at .61 million for 2024. It's important to note that there's a possibility the lifetime gift tax exclusion may return to a lower amount in 2026 unless Congress takes action.Giving cash allows your loved ones the freedom to address their immediate financial needs or invest it as they see fit. It's a simple yet powerful way to provide financial support.

Contribute to a 529 plan

For those looking to assist with higher education, a 529 plan is an excellent option. It's an investment account specifically designed for educational expenses. The money grows tax-deferred, and withdrawals are tax-free when used for qualified education expenses such as room and board, tuition, and books.Moreover, up to ,000 in leftover 529 plan funds can now be used to jumpstart the beneficiary's retirement savings in a Roth IRA if the 529 plan account is at least 15 years old and meets certain requirements. This provides a dual benefit of helping with education and preparing for the future.

Pay for tuition

Directly paying a loved one's tuition for private school, college, or graduate school is another way to support them. When you make these payments directly to the educational institution, any amount you give does not count towards your annual gift tax exclusion or lifetime gift tax exemption. It's a straightforward way to ease the financial burden of education.

Pay off student debt

Student loan borrowers often face significant financial stress. Helping them pay off their student debt is a generous gesture that can have a profound impact on their future. In 2024, you can gift up to ,000 per year without incurring a federal gift tax liability. By relieving this burden, you are investing in their educational and financial well-being.

Pay medical expenses

After a health event, medical bills can add to the stress. Paying some or all of a friend or family member's medical expenses directly to a medical provider does not count as a gift and is exempt from the annual and lifetime gift tax exclusions. It helps them navigate the financial challenges of healthcare.

Earmark funds for their Roth IRA

Encouraging loved ones to save for retirement by gifting them cash for their Roth IRA is a great idea. This individual retirement account allows after-tax contributions to grow and be withdrawn tax-free. However, the person for whom the account is opened must have earned income, and contributions cannot exceed their taxable income for the year or the IRS annual limit.For example, if your grandchild makes ,000 from a part-time job, that is the maximum amount you can contribute to a custodial Roth IRA on their behalf.

Gift stocks and bonds

Stocks and bonds have the potential to increase in value and earn interest over time. They can be gifted by transferring ownership to an existing or new brokerage account. For minor gift recipients, this exchange needs to take place in a custodial account.It's important to be cautious as gifting stocks can lead to gift taxes if the value exceeds the annual and lifetime gift tax exclusions. Additionally, the recipient may be liable for capital gains taxes when selling these assets. For savings bonds, the recipient will be taxed when cashing them in and declaring the total amount on their federal income tax return.

Help with a home down payment

Homeownership is a dream for many, but the down payment can be a hurdle. Assisting with the down payment can help accelerate this dream. The annual and lifetime gift tax exclusions apply here, so gifts below these limits are tax-free for both you and the recipient.However, mortgage lenders have specific rules about down payment gifts, including who can give the money and how it should be documented and used. Different loan types have varying down payment gift rules.

Purchase a life insurance policy

A life insurance policy can provide financial security to your loved ones in case of your death. Naming a friend or family member as the beneficiary of your policy ensures they will receive the death benefit, which is not subject to federal income taxes.You can also purchase a cash-value permanent life insurance policy in the name of your loved one and pay the premiums. This gives them life insurance coverage and access to the policy's cash value account, which grows tax-free. But it's important to be aware that accessing policy cash value through loans and surrenders can have implications for the policy's value and guarantees.

Create a custodial account

Opening a custodial account is a smart way to teach children about saving and investing. There are two main types: UTMA accounts that can hold various assets and UGMA accounts limited to financial assets. These accounts have no contribution limits or withdrawal penalties, and once the minor reaches the age of termination (typically 18 or 21 depending on the state), they take control of the account.

Make a charitable donation in their name

Donating to a cause or charitable organization in your loved one's name is a meaningful way to show appreciation. If you itemize your taxes, you can claim most gifts as a tax deduction up to certain limits. It allows you to support their passions and values while making a positive impact.

Give the gift of financial advice

Gifting a financial plan can help your loved ones start their financial journey on the right foot. We can provide them with personalized advice to understand their finances better and identify steps towards their financial goals, whether big or small.Copyright 2024 KPLC. All rights reserved.