Some financial gifts to consider giving are 529 college savings contributions, shares of stock, custodial accounts, savings bonds, prepaid debit cards, and personal finance books can help teach moneyskills.
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Table of Contents
Table of Contents
Key Takeaways
Contributing to a 529 college savings plan can help a child save for future education expenses in a tax-advantaged way.
Giving shares of stock to a child can help teach them about investing, though stocks do carry risk.
Custodial accounts and savings bonds allow adults to gift money to a minor that they can access when they turn 18/21.
Prepaid debit cards and personal finance books can help teens start developing good money habits.
The annual gift tax exclusion allows you to give up to $18,000 per child per year without owing gift taxes. Consult a tax professional if gifting over that amount.
As we enter the holiday season, you're probably starting to brainstorm gift ideas for your friends and loved ones. Putting cash in a card can be an easy, generous way to show someone you appreciate them, but there are other money gift ideas that may come across as more personalized and meaningful.
Whether you're shopping for a baby or an adult, here are some ways to give money as a gift.
Financial Gifts for Kids & Babies
Some financial gifts can be valuable for babies and young kids because they'll have more time to potentially benefit from compound interest and the tax advantages offered by certain investment accounts. Here are some financial gifts to consider for this age range.
College Savings
Helping a child save for collegecan help reduce the amount they may one day have to borrow in student loans. 529 plancontributions grow tax-deferred and can be withdrawn tax-free as long as the money is used to pay for qualified higher education expenses.
Shares of Stock
Some kids may be excited to be a shareholder in one of their favorite companies. Purchasing a single share of stock for a child can help them learn about the stock market and potentially earn some money. Of course, this investment type can't guarantee growth, and may instead lose value over time. But even then it could still provide a learning opportunity.
Custodial Account
A custodial account is a financial account that's set up by and administered by an adult for a minor. Money that's deposited into a custodial account immediately and irrevocably becomes the property of the minor. When the child reaches the age of majority, they can take over control of the account. You could open a custodial savings account at a bank to give to a child as a gift.
A certificate of deposit (CD) is a federally insured investment that offers a fixed interest rate for a set period of time. Generally, CDs with longer term lengths earn higher rates of interest.
Savings Bonds
Savings bonds offer fixed or variable rates of interest, depending on which type of bond you have. Bonds can be a great gift for a baby or a young child because they are structured to reward long-term borrowers. Savings bonds can earn interest for up to 30 years.
Donation to a Charitable Organization
For kids who have everything, consider donating to a charity in their name. You may want to consider a children's hospital, a wildlife sanctuary or an organization that aligns with something the child is passionate about.
Financial Gifts for Teens & Adults
For teens and adults, you may want to consider financial gifts that can help them establish good money habits and build their personal finance skills. Here are a few suggestions to consider.
Prepaid Debit Cards
Prepaid debit cards are similar to gift cards, except that they can be used to withdraw cash, pay bills and shop at almost any retail store. The cards are also reloadable, so if you're shopping for a teen, this gift could help them develop good money habits. Prepaid debit cards often come with fees.
IRA Contribution
Do you want to help a teen get a head start on saving for retirement? You can open and manage an individual retirement account (IRA)for someone of any age, as long as they earn income from a job or self-employment, such as babysitting, mowing lawns or other service. You can contribute up to $7,000 per child, or the amount of the child's annual earnings, whichever is smaller.1
Personal Finance Books
Sometimes, the best financial gift is a gift of education. There are many personal finance books geared toward teens, covering topics like saving and investing, credit cards, budgeting and entrepreneurship.
Gift Tax Considerations
You can give fairly large financial gifts to a child without owing taxes on them. Grandparents who are in the estate planning processmay consider giving large gifts to reduce their taxable estate.
The annual gift tax exclusion amount is $18,000 ($36,000 for married couples) per child in 2024.2 Taxes can be complicated, so if you're planning on giving a large financial gift, you may want to consult with a tax professional.
The Bottom Line
Financial gifts can have a lasting impact on a person's life. Whether you're helping a child save for college or teaching a teen a valuable personal finance lesson, your gift can be an investment in their future.
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Save, Invest, Grow Your Wealth!
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Some financial gifts to consider giving are 529 college savings contributions, shares of stock, custodial accounts, savings bonds, prepaid debit cards, and personal finance books can help teach money skills.
You can use a trust to give money while you're alive, or to distribute your estate after your death. In some cases, using a trust can allow you to give to your children tax-free, while retaining limits on how the money is used or when they can access it.
When it comes to your family's immediate needs, gifts of cash or assets can potentially reduce your estate tax burden — one of the main motivators for parents considering giving money to children as an early inheritance.
How to Set an Allowance for Kids. A commonly used rule of thumb for paying an allowance is to pay children $1 to $2 per week for each year of their age. Following this rule, a 10-year-old would receive $10 to $20 per week, while a 16-year-old would get $16 to $32 per week.
A gift tax is a government tax imposed on those who give money or property to others in exchange for nothing (or less than total value). There is typically a tax-free gift limit to family members until a donation exceeds $15,000 (jumping up to $16,000 in 2022). In these instances, the IRS is usually uninvolved.
How much can you give? As of 2023, you can give an adult child up to $17,000 in a year before you must file a gift tax return. If your adult child is married, you can also give up to $17,000 to their spouse.
Most people can avoid having to pay federal gift tax when contributing $30,000 to a child's wedding. This is because of the generous lifetime exclusion amount gifts. However, you'll still need to properly report gifts over the annual exclusion amount on your tax return. For 2023, this amount is $17,000.
The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift. However, form 709 is not the only way the IRS will know about a gift.
There are two exclusion rules to be aware of. One excludes from taxation any gift amounting up to $18,000 to any individual for 2024. That means you don't have to pay taxes or even report the gift as long as the amount is less than $18,000 in 2024.
Cash gifts aren't considered taxable income for the recipient. That's right—money given to you as a gift doesn't count as income on your taxes. Score! Everything from that $40 gift card to your favorite restaurant for your birthday to the $100 your friends pulled together when your tire blew out is yours to keep.
The age when you can begin gifting money can depend on legal and financial considerations. Many parents can start gifting to their children as soon as their children are born, but there can be restrictions on how the money is managed or accessed until a child reaches a certain age.
Gifting money to your children can be a great chance for them to learn and grow. As far as when and how much to give, every child and family will be a bit different. But when you decide the time is right, you can help them make the most of the opportunity by helping them come up with a plan for how to use the gift.
The annual gift tax exclusion is a set dollar amount that you may give someone without needing to report it to the IRS. The threshold is typically adjusted to account for inflation each year. The IRS announced that the annual gift tax exclusion will be $18,000 in 2024, up from $17,000 in 2023.
Can my parents give me $100,000? Your parents can each give you up to $17,000 each in 2023 and it isn't taxed. However, any amount that exceeds that will need to be reported to the IRS by your parents and will count against their lifetime limit of $12.9 million.
Giving cash is the easiest and most straightforward way to accomplish gifting money to family members. You can write a check, wire money, transfer between bank accounts, or even give actual cash. You know exactly how much you are giving, making it easy to stay under the $18,000 annual gift tax exclusion.
If you gift cash, generally there are no income tax consequences for the recipient, though there could be gift and estate tax implications to the donor. But if you give appreciated securities, the capital gains taxes can be significant. Also, note that the tax treatment varies widely depending on the recipient.
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