The holiday season is upon us, and this year there are six fewer days than last year to shop between Thanksgiving and Christmas!
Unsure of what to get your nieces and nephews, brothers and sisters, or the neighbor kid who mows your lawn? If you’re like me, you aim to give thoughtful, useful gifts - not objects that will eventually get thrown away. And I prefer to skip the packed parking lots and long lines at the mall and do my gifting without leaving the comfort of my home.
No, I’m not talking about Amazon Prime. I’m talking about the gift that keeps on giving - investments!
As a financial planner I’ve run countless education funding projections and let me tell you, college is expensive. If you have someone on your gift list who intends to go to college, I encourage you to make a contribution to his or her 529 account. A 529 is a tax-advantaged investment account that allows beneficiaries to make tax-free withdrawals for qualified education expenses such as tuition and books.
To top it off, Indiana residents who contribute to Indiana 529s are eligible for a 20 percent state tax credit on annual contributions of up to $5,000. In plain English, this means that for every $100 you contribute, you receive a $20 tax credit on your Indiana return. There’s nothing wrong with giving yourself a little gift at the same time!
The logistics are fairly easy. If the recipient already has a 529 account you can easily make a contribution through Ugift on the CollegeChoice site. You’ll need to have the account owner provide you with the unique code for the beneficiary’s account, though. Gifts can be made electronically or by mail. If the future scholar doesn’t have a 529 account, you can open an Indiana 529 account for free. Each account needs an owner and a beneficiary. The owner can change the beneficiary at any time.
Another thoughtful gift idea is to make a Roth IRA contribution on the recipient’s behalf. You can make a contribution to his or her Roth IRA, assuming he or she has earned income and their AGI is below the phase-out. The gift amount cannot exceed the recipient’s 2019 earned income or the 2019 IRA contribution limit of $6,000. If the recipient already has an account, you can simply write a check made out to the custodian fbo the recipient, for example “Charles Schwab fbo Robert Smith IRA”. If the recipient is a minor and doesn’t have an account, you can open a custodial account in his or her name and make a funding contribution. Minimum funding amounts depend on the custodian, so you may need to check around to find one that works for you. Read More: Roth IRA - Jump Start Your Child’s Retirement Fund
Investments make wonderful gifts. When given the right amount of time and placement, an investment can grow leaps and bounds above your original contribution. It also opens up the door to teaching your loved one about the power of investing and compounding interest. Start them young!
Read More: 529 Plan Resources
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