Making a financial gift during this holiday season is more than a generous gesture to a loved one. It can also be a valuable planning strategy.
1. BUY TIME WITH AN ADVISOR
New graduates, parents of newborns, recent buyers or sellers of a business, and persons nearing retirement are among the potential beneficiaries of a consultation with a financial advisor who can help them assess their current financial situation, set goals, and offer strategies to help achieve your goals. If someone on your gift list would benefit from professional guidance, buying an hour of a trusted advisor's time might be more valuable than anything else they find under the Christmas tree.
2. HELP PAY FOR COLLEGE
Contributing to a student's 529 college savings account can be a big financial help toward pursuing higher education. Any contributions grow tax-deferred, and withdrawals are tax-free for qualified college costs. You can contribute up to $14,000 annually without triggering the federal gift tax. Additionally, you can contribute up to five years' worth of gifts at once; you can put as much as $70,000 into a student's 529 account this year, and then resume your contributions five years later.
3. PAY BIG BILLS
You can offer to pay some or all of a loved one's out-of-pocket medical expenses or help pay down your child's student loan. There are some restrictions on the latter option; for there to be no negative impact on the student's financial aid, he or she must still be in college and be a dependent, and the money must come from the student's parents. If any of those conditions aren't met, then the payment is treated as untaxed income and can reduce the aid from the gift by as much as half.
4. DONATE WISELY
Giving to a charity or a cause in the name of a loved one provides a lot of possibilities for creating a legacy for you, the loved one, and the gift recipient. The beauty of it is that we can help you tailor and maximize your gift's potential impact. The Journal article suggested creating or donating to scholarships, making gifts to zoos, and exploring donor-advised funds.
Donor-advised gifts are a very tax-efficient way to give. You can make the gift to the fund, and then suggest how the money is distributed to your favorite causes now or in later years. In this scenario, you can claim the deduction for the year in which you fund the account; even if the fund distributes the money years later by making grants to charitable organizations, you get the deduction at the time you give away the money.
5. REMEMBER YOURSELF
Generous givers occasionally need to be reminded that the biggest and most lasting gift they can make for their loved ones is to put in place their own solid estate and financial plan. You can best protect your family with documents drafted by an experienced attorney, and an investment and retirement plan created with the guidance of a knowledgeable financial advisor.
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