4 Ways to Give Investments as Gifts
Gifting investments allows you to invest in the futures of those you love today. Whether the investments grow in value through appreciation, dividends, or interest, your loved ones can continue to reap the rewards of several different kinds of investments for years to come.
Depending on your gift recipient, different types of investment gifts can help make their futures brighter. The ideas below can help you understand some of the different types of investments you can give as gifts. This can help you plan your giving — and help your loved ones get started on a path towards growth.
Savings bonds have long been a favorite gift from grandparents to new grandchildren. Why? Because these government-backed bonds have a low risk of ever losing money since the principal is guaranteed by the federal government.
There are two types of savings bonds: Series EE1 and Series I.2
Series EE bonds can be purchased electronically in $25 increments and earn a fixed interest rate for a term of 30 years. Bondholders can also cash Series EE bonds before maturity.
Series I bonds can be purchased electronically or as paper bonds (available increments vary) and pay a variable rate of interest based on the bond's interest rate and annual adjustments for inflation. They have the same 30-year term as Series EE bonds.
It's never too early — or too late — to give the gift of an education. Gifting a college savings plan like a Coverdell Educational Savings Account (Coverdell ESA) or a 529 Plan can help you invest in a loved one's education goals.
A Coverdell ESA allows someone's family members (grandparents, parents, extended family) to open a savings account for the specific purpose of funding an education.3 You can gift up to $2,000 per year into a Coverdell ESA. According to IRS guidelines, contributions can grow tax-deferred, and distributions are tax-free when used for qualified educational expenses.4 Coverdell ESAs can also be used to pay for elementary, middle, and high school tuition. The only catch for Coverdell accounts is they have to be opened before the beneficiary for the account turns 18.
A 529 plan allows anyone, not just family members, to invest in education. Contributions aren't tax-deductible, but funds in the plan grow tax-deferred, and withdrawals are made state and federal tax-free so long as they're used for qualified educational expenses. There aren't any limits to annual contributions to 529 plans, but some states have caps on the total contributions to a single account.
If you're looking to contribute to their children's or grandchildren's futures, you can gift a cash investment to a retirement account like an IRA.
If you've built up a substantial stock portfolio over time, you might want to share a slice of your good fortune with loved ones. Gifting shares of stock can be both a part of your wealth transfer strategy and help loved ones create a nest egg with the potential for long-term growth.
To gift stock, you'll need to contact the brokerage where you hold your shares and go through their process for retitling the shares5 you wish to gift. This process transfers the stock into the name of the person you're gifting it to. It's even possible at some brokerages to schedule a recurring stock gift to the person of your choosing.
If you want to buy stock directly for a loved one, you can gift shares by purchasing them directly through your brokerage and retitling them or from companies that specialize in gifting stocks.
Savings and retirement contributions
Investing in a loved one's future can be as simple as a cash gift made to a savings account.
Cash infused into a loved one's savings account can help a teen save for a car or an adult child make the down payment on their first home. For those looking for a way to contribute to their children's or grandchildren's futures, you can gift a cash investment to a retirement account like an IRA. Money gifted today can grow with tax-deferred benefits, helping your loved ones take advantage of the power of compound interest until they need to tap their savings.
With all the ways listed above to gift investments, there's sure to be a way that aligns with how you envision contributing to a loved one's future. As with any gift, be sure to speak with a financial advisor about topics such as annual limits and any potential tax implications so your good intentions don't come back to bite you at tax time.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Treasury Direct, "Series EE Bonds," accessed October 16, 2020. Back
- Treasury Direct, "Series I Savings Bonds," accessed October 16, 2020. Back
- Ken Clark, "A Beginner's Guide to the Coverdell ESA," The Balance, published March 27, 2020, accessed October 16, 2020. Back
- IRS. gov, "Qualified Education Expenses," accessed October 16, 2020. Back
- Joshua Kennon, "How to Give Stock as a Gift," The Balance, April 29, 2020, accessed October 16, 2020. Back
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