In a bull market, here are gifts to help people grow their wealth, starting at just $100 - and up to $1 million

MW In a bull market, here are gifts to help people grow their wealth, starting at just $100 - and up to $1 million

By Venessa Wong

Financial experts share tips on gifts that truly pay off for recipients

Big holiday shopping sprees are still a popular tradition - with online spending between Thanksgiving and Cyber Monday reaching $76 billion this year - but many consumers these days want to receive something more than any material present: wealth.

Money is, in fact, the gift people get most excited for worldwide, according to a 2023 YouGov survey, beating out gift cards, books, event tickets, clothing and electronics. There are some cultural distinctions: nearly four in 10 U.S. consumers (38%) said a money gift would excite them, which is less than Indonesians (71%) but more than Danish consumers (15%).

While financial gifts remain less common in American culture compared to others, they can play an important role in relieving the ongoing financial pressures Americans say they face (especially during this costly time of year), which makes it harder for them to save and invest for the future. By the time they hit retirement age, 70% of retirees said they wished they had started saving earlier.

Wall Street expects stocks to rise in 2025, and by giving financial gifts, especially to children, you're "encouraging people to become more engaged in their personal wellbeing, financially," Ross Cutler, founder of King Tide Advisors and a financial planner, told MarketWatch. "Amazon is really good at giving you a product you'll throw away at some point. But if you gave them Amazon stock, it may stay with them for forever."

MarketWatch spoke with financial experts for suggestions on great financial gifts for budgets as small as $100 and as large as $1 million. Stuffing a check in an envelope always works, but if you're trying to be more intentional, here are some alternatives.

Speak to a tax consultant if you're thinking about big gifts. Americans are limited to giving $18,000 per recipient in 2024 (married couples can give $36,000 per recipient) without having to file tax forms. Gift givers who exceed this limit are required to report the gift to the IRS using Form 709, which would count anything over the annual limit against the giver's lifetime gift exemption, which is currently $13.61 million and will increase to $13.99 million in 2025. If you hit your lifetime exemption, any gifts beyond that, including your estate, are taxable, and the donor is typically responsible for paying them.

If your budget is $100

Buy a share of stock

Open a custodial account for your child and help them invest, or if you're gifting to an adult who doesn't have a brokerage account yet, set one up together with them so they can begin their investing journey.

"Ask your children, 'If you could buy anything in the world, what would you buy?'" Culter said. "If they say garbage trucks, you can say, 'Great, let's buy a piece of garbage trucks and buy something like Waste Management $(WM)$. If they say jets or aircraft carriers you can look at buying defense contractors like Huntington Ingalls $(HII)$ , Northrup Grumman $(NOC)$, or Lockheed Martin $(LMT)$ and own a piece of jets and aircraft carriers." Many kids might list things related to companies like Disney $(DIS)$, Mattel $(MAT)$, Nintendo (JP:7974), Sony $(SONY)$ and Roblox $(RBLX)$. If the company named has too high of a share price, fractional shares could be an option, or Cutler suggests finding index funds that include those stocks and offering that alternative. "You're just engaging them in things that they like, and having them look at it and understand it" financially, Cutler said. Periodically check the stock's performance. The goal is "building their knowledge around that financial gift," he said.

If your budget is $1,000

Contribute to a Roth IRA

Hypothetically, $1,000 invested into Vanguard's target date 2045 fund 10 years ago would have been worth $2,361 by mid-2024.

This is great for anyone, but because Roth investments grow tax-free and are withdrawn tax-free in retirement, "The younger they are the better, because it has a long period of growth," said Monica Dwyer, a financial planner and a senior vice president at Harvest Financial Advisors. "It is a great way to gift without spoiling them because they have to delay the gratification of using it until retirement." Parents and grandparents can open a Roth IRA for a child and make contributions - as long as the child is of working age, has earned income (from a job), and their income level makes them eligible to contribute.

It "gets tricky, because you have to make sure that they qualify," said Jorie Johnson, a financial planner at Financial Futures. If the person you're gifting to is eligible, you'd simply give the gift recipient money to deposit into their IRA. Keep in mind that people can contribute up to a total of $7,000 into their IRA in 2024 ($8,000 if they're age 50 or older). However, if the person earned less than $7,000 this year, they could only contribute up to the value of their income.

If your budget is $10,000

Informal 'matching' gifts

Gifts of this size can be ideal for people post-college, according to Catherine Valega, a financial planner at Green Bee Advisory. Johnson said some clients offer their children and grandchildren matching gifts to help them save for big financial goals, such as a car or a down payment for a home. "It's almost like a 401(k) match for your savings, and it can be a real incentive," she said.

Remember: The $18,000 annual exclusion per recipient still applies, or if you're giving as a married couple, $36,000 per recipient.

Contribute to a 529 college savings account

Not only do funds in 529s grow tax-free, they are also withdrawn tax-free when used to pay for educational expenses. In some states, the person funding the account can also deduct a portion of their contributions from their state income taxes.

Most kids planning to go to college will take any help they can get - the average annual cost of tuition and room and board now ranges from $28,840 at in-state public colleges to $60,420 at private colleges, according to the College Board. Again, "You can contribute up to $18,000 into a 529 plan for each child" and stay within the IRS annual exclusion, said Cutler.

If the gift recipient is already in college, another option is to help pay their tuition directly. As tuition expenses paid for someone are not considered gifts, they are not subject to the IRS's annual exclusion.

If your budget is $100,000

One more 529-related idea, but at a totally different scale.

If you are in the fortunate position of having tens of thousands of dollars to gift, you may also choose to "superfund" a 529 by contributing up to five years of maximum excludable contributions all at once. In 2024 that would be $18,000 times five, or $90,000, and $180,000 for a married couple. You'd have to file Form 709 for the next five years and report a prorated amount to the IRS, but superfunding a 529 would not count against your $13.61 million lifetime exemption.

"A larger lump sum contribution may potentially generate more earnings compared to the same size [529] contribution spread out over months or years because it has a longer time horizon," according to Fidelity. In terms of state tax deductions when superfunding a 529, the gift giver might only be able to deduct their contribution that year, depending on state rules.

If your budget is $1 million

Give a multi-unit investment property

If you want to give a physical gift that also generates income, consider a multi-unit investment property, said Brian Schmehil, managing director of Wealth Management at the Mather Group. "It may take some additional time and resources to rent and manage the property, but you will be left with an asset that will do well during a high inflationary period and give you another source of income you can use to reinvest or cover other needs," he said. Real-estate gifts aren't tax deductible, and are also subject to gift tax rules, according to H&R Block.

Set up a trust

If you're interested in passing wealth not only to loved ones, but to charity as well, one kind of trust Johnson recommends is a charitable remainder trust, a kind of irrevocable trust that regularly pays income to beneficiaries, either a dollar amount or a percentage of the value of the trust, for the life of the beneficiaries, or for a set number of years up to 20 years. At that point, the remainder of the trust is passed onto charities of your choosing. The cash, stocks and other assets (real estate, private business interests and private company stock) you donate into the trust may be eligible for a partial tax deduction, according to Fidelity Charitable, and the trust's investment income is tax exempt. Beneficiaries pay taxes on the income they receive.

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-Venessa Wong

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December 05, 2024 06:00 ET (11:00 GMT)

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