One of the most loving things parents or grandparents can do is help secure the financial future of a child they love. With Christmas only a few weeks away, it is the perfect time to give a savings bond, college contribution, or other monetary gift. While young children might not appreciate financial Christmas gifts so much now, they will when the time comes to use them. Whether you’re looking for a stocking stuffer or a main gift, consider some of the options we discuss below to help your child or grandchild in the future.
529 College Savings Plan
College tuition is climbing at a rate faster than inflation. The cost of tuition and fees alone can range from nearly $10,000 per year for a public, in-state college to more than $35,000 per year for a private college. A 529 College Savings Plan helps you set aside money for a child to attend college while also lowering your own tax liability.
If you have a 401(k) or an Individual Retirement Account (IRA), you will already be familiar with how this type of savings plan works. You invest pre-tax dollars into a fund managed by an asset management company in your state. It then makes investments according to your wishes and would be your point of contact for withdrawals and questions.
Pre-paid tuition is another variation on the 529 College Savings Plan. It allows you to pay tuition to a school your child or grandchild plans to attend and lock-in your payments at today’s tuition rates.
United States Treasury Savings Bonds
Savings bonds make ideal financial Christmas gifts because they can be made payable to a child. In exchange for purchase of the bond, which effectively borrows money to the United States treasury, the beneficiary can earn interest when cashing it in several years later. It can earn interest for as long as 30 years.
The United States Treasury offers two types of savings bonds. Any series EE bonds purchased after May of 2005 earn a fixed rate of interest each year. They double in value after 20 years. Series I bonds earn variable semi-annual interest based on the current rate of inflation as well as a fixed return rate.
You now have the option to purchase savings bonds online at the Treasury Direct website. Before doing so, you will need the child’s social security number and full legal name of his or her parent or guardian if not you.
IRAs and Stocks
If your child or grandchild earns an independent income, you can open and contribute to an IRA account for him or her. You can also gift a child with stocks or transfer shares of stock that you currently own to a separate account in the minor’s name.
The earlier a child learns about financial realities, the more prepared he or she will be for adult life. Aura Wealth Advisors welcomes the opportunity to help your child or grandchild plan for the future by having one of our advisors meet together with the two of you.