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Advice

1st Source Asset Advisors logo

Holiday Gifting Beyond Toys: Investing in Your Kids’ or Grandkids Future

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Family opening presents by the Christmas tree. Besides toys, they are and investing in children's future with savings accounts and 529 plans.

When giving gifts to our children or grandchildren, we often default to the latest toys or gadgets. However, the value of these items tends to diminish over time in terms of both interest to the child and monetary value.

A different approach to gifting can focus on investing in a child’s future. This perspective offers more than instant gratification; it provides lasting benefits that may help provide an independent future for your loved ones.

Savings account

A savings account is a traditional way to invest in your child’s or grandchild’s future. Opening an account in their name provides them with a financial safety net and can familiarize them with saving from an early age. It encourages them to think about finances and manage money responsibly, setting a foundation they can build upon into adulthood.

529 Plan

Another worthwhile investment is education. A 529 or education savings plan is an investment account that offers tax-free withdrawals on the accumulation when used to pay for qualified education expenses. 529 plans can pay for college, K-12 tuition, apprenticeship programs, and education loan repayments.

Leftover 529 plan monies can be used to fund a Roth IRA over five years at the allowable contribution amount. Visit with financial or tax professionals to understand how this works.

Securities

For longer-term investing, consider investing in securities for the child. Explaining to them how these investment strategies work can provide invaluable lessons in economics, patience, risk-reward, and performance analysis. Over time, these investments may continue to accumulate value, providing potential returns. Because taxation on securities gifted to children can be complex, it’s essential to consult financial and tax professionals. The ‘kiddie tax’ can affect a child’s tax liability on an investment return or receiving financial aid. Therefore, you must understand how this gift will impact the receiver.

Trust Fund

A trust fund is a legal structure that allows you to set aside assets for another person’s benefit—your child’s or grandchild’s. You can transfer cash or investment strategies into the trust, which protects the assets from legal claims. Trusts must be formed with help from legal and tax professionals since they’re considered legal entities with tax IDs. Therefore, fully understanding the pros and cons of a trust fund and its taxation is essential before determining if this strategy is appropriate.

Individual Retirement Account (IRA)

Contributing to an IRA for a child may seem premature. Still, the accumulation of IRAs over time may make a compelling argument for early investing. Although your children or grandchildren might not fully appreciate this gift in their youth, they can thank you when they are older and financially independent.

In conclusion, while toys and gadgets may bring joy in the moment, they eventually become obsolete. By considering gifts that invest in your child’s or grandchild’s future, you provide them with tools and resources that have a lasting impact, helping set them up for an independent future while instilling valuable financial education.

For more information on financial gifting, contact Ben Finan by calling (574) 235-2618 or send an email to [email protected].

Check the background of investment professionals associated with this site on FINRA’s BrokerCheck.

 

1st Source Bank provides referrals to financial professionals of LPL Financial LLC (LPL) pursuant to an agreement that allows LPL to pay the Financial Institution for these referrals. This creates an incentive for 1st Source Asset Advisors to make these referrals, resulting in a conflict of interest. 1st Source Bank is not a current client of LPL for brokerage or advisory services. Please visit https://www.lpl.com/disclosures/is-lpl-relationship-disclosure.html for more detailed information.

 

Securities and advisory services are offered through LPL Financial, a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. 1st Source Bank and 1st Source Asset Advisors are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using 1st Source Asset Advisors, and may also be employees of 1st Source Bank. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, 1st Source Bank or 1st Source Asset Advisors. Securities and insurance offered through LPL, or its affiliates are:

Not insured by FDIC or any other government agency. Not bank guaranteed. Not bank deposits or obligations. May lose value.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal.

Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or 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. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This article was prepared by Fresh Finance.

LPL Tracking #644104

Sources:
https://www.investopedia.com/types-college-savings-plans-7187399

https://www.savingforcollege.com/intro-to-529s/what-is-a-529-plan

https://www.schwab.com/learn/story/upshot-gifting-appreciated-stock

https://www.investopedia.com/articles/investing/101215/how-trust-funds-can-safeguard-your-children.asp

 

Ben Finan

Financial Consultant

‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ Email Ben Default State Blue Right Pointing Arrow Hover State Orange Right Pointing Arrow
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