Smart_Financial_Gifts_for_the_Holidays

Few things compare to the joy of watching someone you love unwrap a gift you chose especially for them.

But for many people, there can be even greater satisfaction — and long-term benefits — to giving a gift that doesn't fit in a box or come tied with a bow.

With steady economic and employment growth across the country and consumer confidence near a 17-year high, Beth Norman, a financial advisor for RBC Wealth Management-U.S., is seeing more financial gift giving this year.

Some of the most popular financial gifts, Norman and some of her colleagues say, include contributing to college costs, giving to charities, family vacations, cash and stock.

They're the kind of gifts that in previous generations may have only been given upon their death.

“Many people already have all they need," says Norman. “They want to share what they have and see their children and grandchildren enjoy the money while they're still here. That really brings joy to their hearts."

Take Advantage of the Increased Gift Tax Exclusions

Probably the easiest financial gift is cash.

Each gift up to $15,000, or $30,000 for a married couple, is excluded from gift taxes.

Some parents give their adult children money — $5,500 or $6,500 if they're older than 50 — so they can make their annual contribution to a Roth IRA or traditional IRA, Norman says. That's helpful if the recipient has lost a job, has hefty medical bills or just can't save much money due to family obligations, she adds.

“For many people, December to January is a tough time for budgeting with the holidays and year-end bills such as property taxes," Norman says. “People give financial gifts simply to ease the stress of a really expensive time of year."

For smaller cash gifts, many banks, including City National Bank, also offer Visa gift cards as a convenient and secure way to give money.

Create a Strong Foundation for Children

Many parents and grandparents like the idea of a gift ushering their children or grandchildren down the path of financial literacy and financial responsibility, advisors say.

“Giving kids a financial gift starts the conversation of how much to spend on something for myself, how much to save toward a major goal and how much to share with others in need," Norman says. “One of my favorite ways to introduce young kids to money is to create 'Spend, Save, Share' banks."

Nora Yousif, a financial advisor for RBC Wealth Management, sees parents and grandparents giving stock as a holiday gift to children. It helps if the stocks are in companies, such as Apple, Disney or Facebook, that they know, understand and can get excited about, she adds.

“It's a great learning opportunity as kids watch their stocks progress and learn the power of compounding from an early age," Yousif says. Stocks fall under the same annual gift tax exclusion limit as cash.

A website called Stockpile.com lets you create and fund a custodial account for a child so she can buy shares or fractional shares of more than 1,000 stocks at 99 cents per trade, which must be approved by an adult. Kids can track their stocks online and create a stock wish list.

Grandparents may also want to consider contributing to their grandchildren's 529 college savings plans, Yousif says.

“It's a great gift because it can help lower the giver's estate," she says. Although each gift of a 529 plan contribution is limited to the $15,000 annual federal gift tax exclusion, you can contribute up to five years at once or $75,000 ($150,000 per grandparent couple).

Moreover, some grandparents will directly pay the college tuition of older grandkids, Yousif adds, because there's no maximum amount. People can give an unlimited amount each year to someone for tuition if paid directly to the educational institution and all of it is excluded from federal gift taxes.

Make the Most of Your Gift to Charities

The holiday season is when many people think about helping others who are less fortunate or donating to worthy causes.

In fact, Americans donated more than $400 billion dollars in 2017, according to a report by Giving USA, a foundation that publishes data and trends about charitable giving.

In addition to charitable giving being a rewarding experience, it comes with tax benefits.

With the stock market at an all-time high this year, people can give appreciated stock to benefit a charity and reduce their capital gains at the same time. When the nonprofit sells the stock, it won't have to pay capital gains.

Another option is to open a donor advised fund to realize the tax benefit now for charitable contributions made in the future. You can take charitable income tax deductions and make additional fund contributions that generate more tax advantages in future years.

A donor advised fund is created with a parent non-profit organization, such as a community foundation, that handles the investments and administration of the fund. You still choose what charity to support and recommend the timing and amount of gifts.

If you're older than 70.5, you can make a charitable gift directly from your retirement account to satisfy the required minimum distribution. Norman sees more people embracing this method in recent years because the gifted amount is excluded as earned income from that year's income taxes.

Check if your employer has a charitable-gift-matching program to stretch your dollars.

Establish a Tradition of Legacy

Beyond the tax benefits and satisfaction of helping a loved one, financial gift giving can be a way for families to begin building a financial legacy, Yousif says.

While conversations about money can be challenging, those barriers can be broken down when the conversation in is in the context of giving, she adds.

“More people are passing on their values around money in gifting. They're breaking the 'money silence' to start having conversations across generations to instill their values in their family members," she says.

 

This article is a republication of content originally published by RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC. © 2018, Royal Bank of Canada, used with permission.

City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the report with no obligation to update or notify of inaccuracy or change. This report may not be reproduced, distributed or further published by any person without the written consent of RBC Capital Markets, LLC. Please cite source when quoting.

City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations.

City National Bank is an affiliate of RBC Wealth Management and a subsidiary of Royal Bank of Canada. Products and services offered through City National Bank are not insured by SIPC. City National Bank member FDIC.

Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.