12 Financial Generosity Gift-Giving Ideas 

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I know you're getting many emails and posts this time of year, so I'll keep this as short and sweet. As a former community banker, certified tax preparer, and finance director, I want to share these 12 financial gift-giving ideas. In addition, after reading the insightful and knowledgeable Financial Literacy for All book by John Hope Bryant, Chairman and CEO of Operation Hope, I wanted to share some other insights to help you avoid over-gifting this holiday season without purpose. While being generous with loved ones and those in your gift-giving circle is a praiseworthy quality, ensure you don’t neglect your financial needs. Giving gifts is one way to show appreciation for those closest to you. If you’re looking for gift-giving that goes beyond the typical consumer goods, consider these financial gifts that can benefit the long-term economic well-being of your family, friends, co-workers, and community. Make a lasting impact on your friends and family with these thoughtful financial gift ideas.

These 12 financial gifts will boost the economic well-being of your loved ones.

1. Give a cash gift to start their own business

2. Contribute to a 529 plan

3. Pay for tuition

4. Pay off student debt

5. Pay medical expenses

6. Earmark funds for their Roth IRA

7. Give the gift of financial coaching

8. Help with a home down payment

9. Purchase a life insurance policy

10. Create a custodial account

11. Make a charitable donation in their name

12. Gift stocks and bonds

1. Give a cash gift to start their own business

One of the most flexible financial gift ideas is cash. Since your loved ones are most familiar with their financial situation and maybe dream of owning a business, they are likely in the best position to maximize the impact of the funds. For 2024, you can gift an individual up to $18,000 annually (or $19,000 for 2025) without incurring a federal gift tax liability. This is known as the annual gift tax exclusion, which increases yearly based on inflation. Any gift over that amount will count toward your lifetime federal gift tax exclusion — currently set at $13.61 million for 2024 (or $13.99 million for 2025) — the amount you can give away throughout your life without triggering gift or estate taxes. (Note: There’s a possibility that the current lifetime gift tax exclusion returns to a lower amount in 2026 unless Congress acts to extend the current law.)

2. Contribute to a 529 plan

I know you may be wondering what is a 529 plan? It's designed for educational expenses; think of it as an education savings plan account for college and K-12 tuition payments. Suppose you want to help a loved one. Save and pay for higher education, be it a child, niece, nephew, grandchild, or family friend. Consider opening or making a gift to a 529 plan or Coverdell education savings accounts, which are investment accounts specifically designed for educational expenses. The money in a 529 plan grows tax-deferred, and withdrawals are tax-free when used by an eligible student for qualified education expenses like room and board, tuition, and books. Additionally, up to $35,000 in leftover 529 plan funds can now be used to jumpstart the beneficiary’s retirement savings in a Roth IRA if the 529 plan account is at least 15 years old for the current beneficiary and meets specific other requirements.

3. Pay for tuition

You can also support loved ones enrolled in private school, college, or graduate school by paying their tuition directly. When you pay the educational institution directly, you can gift any amount without it counting toward your annual gift tax exclusion or lifetime gift tax exemption.

4. Pay off student debt

If your loved one is a student loan borrower, you can relieve some of that burden by paying off their student debt. As previously mentioned, you can gift an individual up to $18,000 annually in 2024 without incurring a federal gift tax liability. Assisting your loved one in paying off their student loan debt is a profoundly generous act and a significant investment in their future.

5. Pay medical expenses

Medical bills can make a challenging situation more difficult after a significant health event. You can help your friend or family member get through the financial stress of doctor and hospital bills by paying some or all their medical expenses. Any medical bills paid directly to a medical provider don’t technically count as a gift and are exempt from the annual gift tax exclusion and lifetime gift tax exemption.

6. Earmark funds for their Roth IRA

Encourage your loved one to start saving for retirement or boost their current retirement account balance by gifting them cash, which can be used to fund their Roth IRA. This individual retirement account allows after-tax contributions to grow and be withdrawn tax-free. The person for whom the account is opened must have earned income, and contributions to the Roth IRA cannot exceed their taxable income for the year or the annual limit set by the IRS.  For example, if your grandchild works a part-time job and makes $5,000 in one year, that is the maximum amount you can contribute to a custodial Roth IRA on their behalf that year.

7. Give the gift of financial coaching

Help your loved ones start their financial journey on the right foot by gifting them a financial coach. They can receive personalized financial advice, understand their finances better, and be helped to identify steps they can take toward their financial goals, both big and small, including strategies to repay debt or manage their spending/savings. Or to make smart decisions with their money for the long term. Try financial coaching 3-, 6-, and 12-month gift memberships with financial gym https://financialgym.com/membership. Also, send them to Operation Hope to support them with their credit and money management. https://operationhope.org/programs/credit-money-management/ 

8. Help with a home down payment

With the dangers of homelessness and the skyrocketing housing prices, helping your loved one get into a forever home would be magical. Homeownership is a dream for many, but the upfront financial costs associated with the purchase can be overwhelming — and take a long time to save. But you can help accelerate your loved ones’ path to homeownership by assisting with the down payment. The annual and lifetime gift tax exclusion applies in this case, so if the amount you give stays below those limits, it will be tax-free for you and the recipient. However, when considering a down payment gift, keep in mind that mortgage lenders have rules about who can gift money and how the money is documented and used. Down payment gift rules vary by loan type. For example, conventional loan down payment gift rules state that only family members and romantic partners can gift money. For most loan types, the borrower must also provide the lender with a gift letter stating that the money is a gift and not a loan.

9. Purchase a life insurance policy

A life insurance policy can provide more financial security to your loved ones during your death, but it can also make a meaningful gift. The most straightforward way to gift life insurance is to name a friend or family member the beneficiary of your policy, meaning they will collect the policy’s death benefit — not subject to federal income taxes — when you pass away. However, consider purchasing a cash-value permanent life insurance policy in the name of your loved one and paying the monthly premiums. This not only gives your loved one life insurance coverage but also gives them access to and ownership of the policy’s cash value account, which grows tax-free over time. However, it is essential to know that accessing policy cash value through loans and surrenders may cause a permanent reduction of policy cash values and death benefits and negate any guarantees against lapse.

10. Create a custodial account

A smart way to teach children about saving and investing is to open a custodial account for them. A custodial account is a savings or investment account set up and administered by an adult for a minor. There are two main types of custodial accounts: Uniform Transfers to Minors Act (UTMA) accounts — which can hold any kind of asset, including real estate and art — and Uniform Gift to Minors Act (UGMA) accounts, which are limited to financial assets like cash, securities, annuities, and insurance policies.

Custodial accounts typically have no contribution limits or withdrawal penalties, though all withdrawn funds must be used solely to benefit the minor beneficiary. Once the minor reaches the “age of termination" — typically 18 or 21, depending on the state of residence — they will take control of the account as funding these types of accounts is an irrevocable gift to the child.

A suggestion to check out is Acorns Early, which formally Go Henry…

Acorns Early is a custodial investment account designed to help children learn about money and investing from a young age. It's part of the Acorns platform and is known for its automated investing features.

Here's how Acorns Early works:

* Custodial Account: As the parent or guardian, you open the account on behalf of the child. You have control over the account until the child reaches the age of majority (usually 18 or 21, depending on the state).

* Automated Investing: Acorns Early uses a robo-advisor to automatically invest the child's money in a diversified portfolio of ETFs. The portfolio is typically more aggressive than a typical adult's, reflecting the child's long-term investment horizon.

* Educational Features: Acorns Early includes educational resources to teach children about money, investing, and financial literacy. This can help them develop healthy financial habits from a young age.

Overall, Acorns Early can be a valuable tool for parents who want to teach their children about money and investing. It offers a convenient and automated way to invest in a child's future while providing educational resources to help them develop financial literacy skills.

11. Make a charitable donation in your loved one's name

Donating to a cause, charitable organization, or educational institution important to your loved one is a meaningful way to express your appreciation for them while supporting their passions and values. If you itemize your taxes, know that you can also claim most gifts as a tax deduction on your tax returns up to certain limits.

12. Gift stocks and bonds

Stocks and bonds can continue to benefit loved ones over time by increasing value and earning interest. You can gift stocks by transferring ownership to an existing brokerage account or opening a new one in the name of a loved one. For minor gift recipients, this exchange must occur in a custodial account.

A word of caution: Gifting stocks can lead to gift taxes if the value exceeds the annual and lifetime gift tax exclusion. Additionally, the recipient may be liable for capital gains taxes if and when they sell these assets. The recipient will be taxed for savings bonds when they cash in the bonds and then declare the total amount on their federal income tax return.