You made your list. You checked it twice. All your kids are nice, of course!
As we head into the holiday season, your to-do list is likely getting longer and longer. Let’s think about some ways that we can create some win-wins for your financial plans and your family holiday plans.
Maybe the little kids don’t really need more toys, and it can be challenging to find the “right” item for adult children. Besides, you’d rather not fight the crowds to go find these items, right?
Instead, what if you could help your children or grandchildren go to college to pursue their dreams?
What if you could give your adult kids some financial breathing room, or some extra room to fund a family vacation?
We all know that inflation has put extreme pressure on everyday living expenses since the pandemic. When you consider big-ticket items like a college education, it can feel even worse.
(Sidebar: If you’re amid college planning, it will serve you well to pursue all your college options. Apply to the schools you’re interested in and find out what kind of financial aid package they’ll offer. Often, the “sticker price” is not the price you’ll end up paying.)
While college degree requirements are declining in job postings (according to hiringlab.com, roughly half of all job postings on Indeed.com this year did not mention a college degree), I’m still a firm believer that a college education is well worth the investment. Even if half or more online postings don’t require a degree, having one will certainly increase the opportunities available to you and your children or grandchildren.
So, how can we take the need for a great holiday gift, combine it with the need for higher education, mix in a lack of enthusiasm for shopping, and create something amazing?
It’s the 529!
Very simply, a 529 education savings plan is a tax-deferred savings vehicle for educational expenses. While there are some “strings" attached, these are flexible tools which can be used for K-12 and post-secondary education.
An adult custodian holds the account, typically for a minor beneficiary. If the original beneficiary doesn’t go to college, or doesn’t use all the funds, you can redirect the funds to a different beneficiary. If you still don’t end up using all the funds, and it’s been at least 15 years since the account opened, it can be transferred into a Roth IRA (subject to limitations, of course).
While the use of this gift may be delayed, the impact will certainly be felt immediately as your family feels the weight of paying for college lift, even a little bit, and as the beneficiaries start to imagine their future filled with opportunity.
Now, what about adult children?
It turns out, even with a great college education, the cost of living – and especially housing – is still out of reach for many.
According to Yahoo Finance, the average home price in the U.S. increased by 131% between 2007 and late 2023. And we all know it’s not just housing. All the things to keep your home running, family fed and maybe have a little fun along the way…they all cost money, and significantly more now than five years ago.
If you are a more mature reader and have the means to share wealth with your family, consider making a gift of cash or other assets to your adult children. Again, this has the advantage of portability, no shopping required and could literally change the lives of your loved ones. If you’d already intended to gift your wealth to your children and grandchildren, perhaps after your lifetime, imagine the joy of seeing them benefit from it now.
This year, you could gift up to $18,000 to other individuals tax-free. A married couple can each gift that amount, or up to $36,000 together. In fact, you could even gift more than that and never have to pay taxes on it, if you don’t exceed your lifetime exclusion amount, which for 2024 is $13.61 million per person.
(Sidebar: It’s a good idea to talk to a financial advisor to determine the best ways to make family or charitable gifts, consistent with your financial plan and tax strategies.)
Charitable Gifts
We can’t talk about the holiday season without mentioning charitable gifts. Charitable gifts in honor of a loved one can be thoughtful way to show how much you care (plus they don’t involve gift wrapping!) Most nonprofits will even send an acknowledgment to your loved one when you make the donation in their name.
Or consider gifting a membership to a local nonprofit organization. We have several great options here, including the Dennos Museum Center, Botanic Garden at Historic Barns Park or, for the budding entrepreneur, a membership with 20 Fathoms or the Economic Club of Traverse City.
Choosing to make a gift like this can be a meaningful way to further align your financial decisions with your family values. Making these gifts during the holidays can create a fabulous opening to discuss your family’s wealth, and how you hope the next generation might steward these assets.
During this season, there will be countless competing priorities. Make sure you find time to slow down and reflect on what you really want to accomplish for yourself and your family this season and for the future.
The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action.