This year, give savings (not stuff)
Sure checks and gift cards are convenient, but let’s face it – they’re often squandered on trivial purchases. Putting that money towards an investment or savings account instead helps to make sure the money’s spent on what you intended – and there are plenty of options.
“Consider the various benefits of long-term savings, including tax advantages, flexibility and the potential strength of investment options. Also, consider the child’s long-term needs – whether it’s college or for some, broader than that,” says Paula Smith, Senior Vice President, Voya Investment Management.
Here’s a quick breakdown of a few solid savings options:
529: Get them ready for college
If your goal is to help someone save for college, consider opening and funding a 529 plan. These tax-advantaged college savings plans are sponsored by states, state agencies and educational institutions, and as long as the savings are used for related expenses (e.g., tuition, room and board, mandatory fees or required books and computers), the earnings aren’t subject to federal, and, in most cases, state tax. Another bonus: you can change beneficiaries at any time. So if your grandson chooses not to attend college, but his little sister does, you can easily put the plan in her name.
Savings bonds: Let them choose when and how they spend it
Savings bonds have always been a popular gift option, probably because they are considered one of the safest investments (backed by the full faith and credit of the U.S. government). Available in penny increments from $25 to $10,000, there are no restrictions on how the money is used once the bond is cashed in. But since interest rates are at historic lows, the compounding benefit is not what it once was.
Trusts: Stay in control of how much they’ll get and when
Typically set up as part of an estate plan, a trust lets you determine when and under what conditions your beneficiary can access the money you’ve set aside for them. In other words, if you want to make sure your niece finishes college before inheriting this financial gift, you can stipulate she doesn’t get a dime until she graduates. Or you can delay your godson’s inheritance to a specified age. It’s best to explore a trust with the help of an attorney.
Cash Value Life Insurance: Protection and savings, all in one
Life insurance is probably the last thing you’d think of when making your holiday gift list, but you shouldn’t overlook this option. As you pay the premiums, you’re potentially building up cash value in the policy. When you gift it to that special person on your list (aka “the insured”), they’ll have a policy that provides death benefit protection to their family, as well as access to the cash value of the policy. Plus, the value of the policy grows tax-deferred until it’s used.
All in all, if you’re gifting for a child’s future, you can never go wrong. They’ll thank you for it later.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.