Holiday giving that aligns with your goals

With concerns about recession and inflation as a backdrop to this holiday season, you may wonder whether you can give to loved ones in ways more reflective of your personal and family wealth goals. That can include saving on taxes and hedging against inflation — while remaining consistent with the values you and your gift recipient hold.

One of your values may be transferring wealth to the next generation to ensure they're prepared for the future and can weather macroeconomic shocks. Here are some ways to give the gift of economic well-being while protecting your finances.

Give money with taxes in mind

There are numerous ways to give in a tax-advantaged way. For example, in 2022, you can give up to $16,000 in cash or property1 to a person for any purpose and not report that gift to the IRS. The only exception to this annual gift tax limit is giving more than $2,400 to household staff, which must get reported to the IRS.2

Every individual has this cash-gifting option available to them. So, you and your spouse can give $32,000 to one recipient — and that gift doesn't have to get reported to the IRS by either you or the recipient.2

Contribute to a loved one's IRA

Another way to gift money is by making a contribution directly to the recipient's IRA using the deposit method of your choice. In 2022, as long as a recipient has earned income, you can deposit up to $6,000 yearly ($7,000 if the recipient is over 50) to a loved one's IRA. A gift like this can be helpful for older adults who have less time to save for retirement.3

Consider emphasizing to younger people to whom you gift IRA funds that getting compounding interest on funds starting at an earlier age leads to far more funds at retirement. Also, your gift may allow the recipient to put extra money into their 401(k) if they weren't maxing that out before in order to put funds into both accounts. The recipient should check with their employer to be sure your gift for their IRA isn't limited by their income or employer's 401(k) plan contributions.3

You also can open an IRA account for a minor as a custodial account they get control of when they turn 18 (or 21 in some states). The fund can be used later for retirement, a new home or educational expenses. The benefits of compound interest for a child's account are substantial the earlier the account gets opened. The gift recipient or child may also contribute earned income to the IRA at any time.4

The recipient doesn't need to report the gift to the IRS. The donor doesn't need to report the gift to the IRS so long as the total gifts per year (including cash, IRA contributions, and other gifts) don't exceed $16,000 for that tax year. It's important to speak to your tax advisors to clarify reporting requirements, however.

Give the gift of investing

If you're committed to teaching younger family members how to invest in stocks and bonds, you can do so by opening a custodial account. The Uniform Gift to Minors Act or Uniform Transfer to Minors Act (UGMA/UTMA) provides those opportunities so long as your child doesn't have taxable income. If the account is an IRA, the account is tax-free for you as donor and the child up to age 59-1/2. Other investment accounts may be taxable, so be sure to do your due diligence before you open an UGMA/UTMA. With either account type, you (and your recipient, if they'd like) can choose the stocks and bonds through an investment platform.5

You also can gift appreciating and dividend-paying stock of up to $16,000 and not have to report it to the IRS.6 Gifting stocks you already own eliminates your need to pay capital gains on them, too, and minors with no earned income would pay lower taxes on them if they cash them out.6

If you're transferring wealth this way, you may give the maximum allowable annual gift ($16,000 in 2022) in stocks each year. A good rule of thumb is to focus on gifting stocks that can potentially weather market volatility—the up and down fluctuations in stock prices. That way you're helping your gift stock recipients avoid losses if the stock's value falls too low. Stocks that usually survive volatility are in the S&P 500, but do your research for other choices as well.