Put a bow on your 2023 financial giving
With concerns about lingering high prices and recession 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 2023, you can give up to $17,000 in cash or property1 to a person for any purpose and not report that gift to the IRS.
Every individual has this cash-gifting option available to them. So, you and your spouse can give $34,000 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 2023, as long as a recipient has earned income, you can deposit up to $6,500 yearly ($7,500 if the recipient is older than 50)3 to a loved one's IRA. A gift like this can be helpful for older adults who have less time to save for retirement. It's also helpful for younger adults to kickstart the habit of saving for the future. And if you contribute to a traditional IRA (rather than a Roth IRA), the recipient may qualify for a tax deduction as well.
Keep in mind, though, that the IRA contribution limit applies to all contributions. If they've made any contributions to their own account, you'll need to make sure that your contributions plus theirs don't exceed the annual limit. Otherwise, the recipient could be penalized by the IRS for making excess IRA contributions.4
Consider emphasizing to younger people to whom you gift IRA funds that getting compounding investment returns 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.
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) — provided that they have earned at least as much in income for the year. The fund can be used later for retirement, a new home, or educational expenses. The child may also contribute earned income to the IRA at any time,5 as long as total contributions don't exceed the annual limit.
The recipient doesn't need to report the gift to the IRS unless they want to claim a tax deduction for a contribution to a traditional IRA. The donor doesn't need report the gift to the IRS so long as the total gifts per year (including cash, IRA contributions, and other gifts) don't exceed the annual gift tax exclusion for that 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, you can do so by opening a custodial account, also known as a UGMA or UTMA account. Uniform Gift to Minors Act6 and Uniform Transfer to Minors Act7 (UGMA/UTMA) accounts are created under state law and allow you to gift cash, securities and other financial assets to a minor without setting up a trust.
Donating appreciated stock to a charity allows you to avoid paying capital gains on the stock and you may be able to claim a tax deduction.
The gift isn't taxable as long as you don't exceed the annual gift tax exclusion. However, the income generated in these accounts is 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, bonds and mutual funds through a brokerage account.8
You also can gift appreciating and dividend-paying stock up to the annual gift tax exclusion limit and not have to report it to the IRS. Gifting stocks you already own eliminates your need to pay capital gains9 on them.
If you're transferring wealth this way, you may give the maximum allowable annual gift ($17,000 in 2023) 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.
Gift Guaranteed Interest Income
You might also consider giving minor recipients a certificate of deposit (CD). These earn a fixed rate of interest, so in a high-interest-rate environment, they let you lock in your rate for the term — anywhere from a few months to several years.
Just keep in mind that CDs require you to commit to a fixed term. If the recipient wants to cash it out before the term ends, they'll typically owe a penalty.
Whether you're looking to invest for a few months or a few years, Synovus offers a variety of CD types and term lengths to match your needs and goals.
Give the Gift of Education or Health
You can open a custodial 529 educational fund for any child you wish and contribute up to the annual gift tax exclusion amount — more if you superfund the account. That means in 2023 you can contribute five years of funds upfront — $85,000 ($170,000 per couple) — and allow compound interest to grow. You can open a 529 plan for all the children you want and fund them the same way, but overfunding them may subject you to taxes.
Another way to cover a loved one's education — or healthcare — is to pay the money directly to the school or hospital. As long as you pay for qualified health care or educational expenses, there is no set gifting limit.10 Qualified educational expenses include K-12 expenses that meet certain requirements.11
Give the Gift of Charity
A 2021 survey showed that 59% of Americans would rather have a donation made to charity in their name than receive a gift.12 Like any gift to charity, you can write that donation off on your taxes under specific circumstances.13
Again, you can give cash or property (including stocks) annual gift tax limit. You won't realize capital gains if you give stock, but you may be able to write off the fair market value as a charitable donation on your federal income tax return.14
Make sure you give to qualified 501(c)(3) nonprofits, foundations, or donor-advised funds. Otherwise, you might jeopardize your tax deduction.
Before you give a gift to anyone, make sure you understand the IRS and other tax rules. That way you can avoid taxation on your gifts — and receive the appropriate tax deductions.
Talk to your tax advisor and a Synovus financial advisor about the best way to plan your giving. Should you give directly to the recipient or to institutions like investment funds or charities? A financial professional can also advise you of any relevant deadlines before your transfer funds to make certain you receive all tax benefits available to you.
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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.
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IRS.gov, "Frequently Asked Questions on Gift Taxes," updated June 16, 2023, accessed July 13, 2023.
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Maryalene LaPonsie, "7 Tax Rules to Know if You Give or Receive Cash," U.S. News & World Report, published December 15, 2022, accessed July 13, 2023.
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IRS.gov, "Retirement Topics - IRA Contribution Limits," updated July 5, 2023, accessed July 13, 2023.
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William Neilson, "I Contributed Too Much to an IRA - What Should I Do?" Kiplinger, published September 28, 2021, accessed July 13, 2023.
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Stacy Francis, "Op-ed: Here's why you should open a Roth IRA for your kids," published April 25, 2022, accessed July 13, 2023.
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Cornell Law School, "Uniform Transfers to Minors Act," accessed July 25, 2023.
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Cornell Law School, "Uniform Gifts to Minors Act," accessed July 25, 2023.
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Kat Tretina, "5 Best Investment Accounts for Kids," Forbes Advisor, updated July 5, 2023, accessed July 13, 2023.
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Lisa Niser, EA, "Giving stocks as gifts has benefits for both the giver and receiver. Here's what you need to know about it," updated December 19, 2022, accessed July 13, 2023.
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IRS.gov, "Frequently Asked Questions on Gift Taxes," updated June 16, 2023, accessed July 25, 2023.
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IRS.gov, "Instructions for Form 709," updated November 10, 2022, accessed July 25, 2023.
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Michael S. Fischer, "Most Americans Would Prefer Charity Donation Over Holiday Gift: Survey," published November 30, 2021, accessed July 13, 2023.
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Chris Davis, "How to Give Stock as a Gift (And Why Tax Pros Like the Idea," Nerdwallet, updated March 30, 2023, accessed July 13, 2023.
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Jeremy Arkin, "3 things to know about donating stock to a nonprofit," published September 15, 2022, accessed July 13, 2023.
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