Making Cents: Gifts That Keep On Giving For Those You Love Most
By: John P. Napolitano, CFP®, CPA, PFS, MST
By now, most folks are finished with their year-end and holiday gifting. Just in case you’re one of the millions of last minute shoppers with no idea what to get for your closest family members, consider helping them get some financial things done that are frequently unattended.
For younger children, consider starting a 529 college savings plan. Most plans allow for very small opening contributions. In some states, you may even qualify for a state income tax deduction for a portion of that contribution. Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program.
For children already in college, consider paying some of their college bills directly. Checks made out to the institution for tuition and fees do not count against the annual gift tax exclusion of $14,000 per donor.
For children recently out of college, this could be a good time to be sure that they’ve got their adult like financial mind working properly. Help them understand their benefits at work. If there is a 401K, and your young adult is not able to afford contributions due to the high cost of living outside of the parental home, consider providing an incentive. For every dollar invested in a 401K, consider a matching gift so they can afford their lifestyle while making entry level wages. This will allow them to witness the power of saving and tax deferred compound growth.
For young families, the range of possibilities expands significantly. The first may be a gift of professional services. The professional services needed by most young families include an attorney and some sort of financial guidance. For relatively simple situations, be certain that the young family has wills and trusts – especially if there are young children.
Families with young children need to be sure that they have wills for more than property. It is the will where you would appoint any successor guardian for minor children. Leaving this undone could mean a battle amongst family members regarding who becomes the orphaned children’s new ‘parents’.
The trust is significant in that it may prevent minor children from getting their hands on too much money too soon in life. While the possibility may be remote that both parents pass while the children are still fairly young – the outcome could be horrible if you lack the proper structure. Don’t think that this is only for wealthy families, it can apply to anyone with a home, savings and life insurance. Do you think that $X in life insurance proceeds received directly by a 23 year old may be the instigator of future bad decisions? Sadly, we all know that answer.
One inexpensive gift that may keep on giving is to be sure that your young family has adequate life insurance. For young, healthy adults it is most important that the need is calculated without rose colored glasses and that the calculated need is covered. For most young families, the cost of term life insurance will be a lot less than the cost for you to assist financially after a catastrophic event.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.