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10 financial holiday gifts, including some with tax advantages

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Photo by Dima D from Pexels

It's Christmas week and you still have some shopping to do.

Don't worry. Here are some financial gift ideas for those of all ages on your personal Santa list. A few even offer tax advantages.

Christmas is the season that brings out the kid in everyone, but let's start with some gifts that would be great for hard-to-shop-for youths.

Open a Roth IRA for a young worker. If you have a young friend or family member who worked this year, help him or her get started on those way down the road retirement. Open a Roth IRA in the young worker's name. The key things you need to know are how much money they made and, of course, their Social Security number. For 2021, you can contribute up to $6,000 or the maximum earned to an IRA, either Roth or traditional.

Contribute to a student's 529 plan. Millions have opened these accounts, named for the Internal Revenue Code section that created them, to help pay for education costs. The money in these state-sponsored accounts is invested and grows tax-deferred. When 529 plan funds are used for qualified education expenses, which now includes certain kindergarten through grade 12 as well as college costs, there's no federal — and, in some cases, no state — tax on the distributions.

Pay college tuition directly. If can afford it, pay a student's tuition directly. By sending the money straight to the school, the tuition amount is not subject to the federal gift tax. And the direct-to-the-bursar amount is not limited to the annual gift exclusion amount, which is $15,000 for 2021. Just make sure the funds go only to toward tuition. This tax exception is nullified if the money is used to pay for other higher education costs, such as books or dormitory charges.

Contribute to an ABLE account: If someone special has special needs and an ABLE account, add to it. These tax-advantaged savings accounts, whose acronym comes from the official Achieving a Better Life Experience name, were created to help individuals with disabilities maintain their health, independence, and quality of life. Any person may contribute, generally up to the annual gift tax exemption amount ($15,000 this year), to an ABLE account for an eligible beneficiary.

There also are some fiscal presents that offer nice returns, both in thanks from the recipient and earnings beyond the holidays.

Give savings bonds. Yes, this sounds like a geezer gift. However, it could be a good present, and investment, for some.

  • It doesn't take much to buy savings bonds. You can purchase some for as little as $25.
  • There are no fees or expenses to buy the bonds.
  • The risk level is essentially nil, since the bonds are government guaranteed.
  • Interest earned on savings bonds is exempt from state and local taxes. Federal taxes aren't due until the bond is cashed or matures. And if the bond is used to pay for college, the interest earned might be exempt from federal taxes.

Also, in this time when safe investments like CDs are returning next to nothing, savings bonds offer more appealing return. This is particularly true of I bonds, which get their initial I name because they are tied to inflation. Currently, the composite (fixed + inflation) interest rate for I bonds issued from November 2021 through April 2022 is 7.12 percent. This rate applies for the first six months you own the bond. Then the inflation rate usually changes every six months.

The safer savings bond route is a good introduction to investing, especially for younger kiddos. But if you and your gift recipient are more financially outgoing, it's time to make some bolder market moves. Plus, these options are suitable gifts for youngsters and older gift recipients alike.

Give stock. Making a present of stock is a good gift for just about anyone. For youngsters, it's a great way to teach about the market and capital gains taxes. Add to the appeal by giving shares of companies that the receiving youngster knows. There are plenty of entertainment-related options, such as the companies that make the movies or video games they enjoy. This also is a good way to get them started in the financial, and tax, world. You can buy the shares yourself or use online options, such as, to make the gift.

Or you can give some of your appreciated shares. This provides you and the gift recipient a fiscal link. You can check on how the asset is doing together. This option also could provide tax advantages for both of you. By giving shares that have increased in value, you avoid paying tax on the capital gains. And as long as the gift recipient is in a low tax bracket, which is the case for most young people, he/she likely won't owe tax on gains for many years. And, as noted, stock gifts are great for children of all ages.

Make a gift of cryptocurrency. Oh, what the heck, go all the way out there when it comes to investing. Give crypto. That's apparently what many folks are asking for this year, according to a recent CNBC article.

Bitcoin batch (2)

In that piece, Carmen Reinicke writes:

"It's also generally simple to gift certain cryptocurrencies, especially the most popular such as bitcoin and ethereum.

Companies such as Coinbase, Binance, CashApp and Robinhood allow users to gift different coins to others, sometimes through an email gift card, if the recipient doesn’t yet have an account or digital wallet. To access the gift, they’ll need to set one up that can store the cryptocurrency.

These platforms also allow people to send portions of coins, which is helpful as many cryptocurrencies are very expensive. For example, one bitcoin is currently worth more than $47,000." 

Or, turn your financial gift giving around 180 degrees with the following last-minute options.

Give cash. Long-time readers know my personal motto is, "Say it with cash." When it comes to gifts, that old saw nails it. Cash always fits and green, or the more multi-hued currency in new bills, looks good in everyone's wallet.

Also, remember that $15,000 gift tax amount mentioned earlier in discussing tuition payments? Anyone can give up to that amount in 2021 (it's adjusted annually for inflation) to anyone and avoid facing gift tax consequences. Even better, there never are any tax worries for the gift recipients.

Yeah, I know most of us are not able to be that generous. But I wanted to toss the possibility out there just in case you have a rich relative who happens to ask what you want to find under your Christmas tree this year.

Grab a gift card. If you think any amount of cash is too tacky or lazy, a gift card could be a good alternative. They're super simple to wrap or stick in a holiday card and are found in just about every store or online if you're still into staying at home as much as possible. You can choose from the versions issued by Visa or Mastercard that the recipient can use anywhere. Or if you want to be more personal, give a gift card from the recipient's favorite retailer.

Be charitable in your gifting. Finally, expand the season of giving by donating to a charity someone's name or the memory of a loved one they lost. Giving to charities already is a holiday tradition for nearly two-thirds (64 percent) of Americans, according to a recent survey conducted by Artemis Strategy Group on behalf of Fidelity Charitable, Fidelity Investments' charitable gift fund. Another 59 percent told the pollster that rather than get a traditional gift, they'd rather receive a donation to charity in their name.

Making a charitable contribution also could give you, the gift giver, a tax present at filing time. If you itemize, the full value of your donations can be claimed. And if, like most taxpayers, you use the standard deduction, for 2021 returns you can claim up to $300 in qualified donations if you're a single taxpayer or twice that if you and your spouse file jointly.

And the best part about all these financial gifts, even those without a tax component, is that you don't have to brave the last-minute shopping hoards to buy them and they are not affected by recent supply chain shortages.

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