Holiday Gifting

We work with many of our clients to manage wealth with a multi-generational focus. Some want to use the resources they’ve worked to build in ways that help with family priorities like education and financial security. Others have inherited wealth and they feel they want to do their best to pass on the sense of freedom they’ve been able to enjoy. Regardless of the gift size, with some planning there can be ways to give more efficiently, thereby preserving more for them and their families’ benefits.

The Rules — In 2024, the IRS allows annual gifts up to $18,000 per recipient. Couples can double this amount by gifting separately. Amounts above this amount require a gift tax return, and the amount is applied against the lifetime estate exemption which is currently $13,610,000.

Some families will need and seek elaborate estate plans involving trusts and other financial entities. Most typically, we see clients thinking of gifts well below that IRS filing level that will help with college expenses or provide kids with a financial boost to help them later in life.

529 Plans — Education is a priority for many families who don’t want their loved-ones’ options to be limited by finances. 529 Plans are very popular. There are rules around the timing and size of contributions, but essentially funds grow tax-free and withdrawals for educational purposes are also not taxed. Unused funds can be dedicated to another beneficiary or rolled over to fund a Roth IRA.

Custodial Accounts — Gifts to children can be held in custodial accounts for their benefit until they are no longer minors. Because currently the first $2,600 of income generated from these accounts would be subject to favorable “kiddie tax” rules, gifts of appreciated securities can help the giver avoid capital gains tax.

Roth IRAs — If the child has earned income, in many cases contributions can be made to a Roth IRA in their name. This account would allow the balance to be invested and grow tax-free. Distributions for higher education can be taken without penalty, or the funds can remain in the account until they are 59 1/2, when distributions can be taken without tax or penalty. The early start can give these funds extra time to grow into significant retirement resources.

These can be great ways to make meaningful gifts to your next generations of loved-ones, but with each there are tax rules and limitations. We have very knowledgeable planners in our office who can be great resources, so please contact us with questions. Happy holidays!