3 ideas to make the holidays brighter
I love the holiday season. It is a great time to gather with family and friends and build memories that last a lifetime. However, sometimes the holiday bustle can turn into a real hassle and the post-holiday let down can be a real bummer. If the shine has come off your holidays in recent years, maybe it’s time for a change. Here are three financial ideas that might help your holidays shine a little brighter.
Start by setting a realistic budget for how much you are going to spend on gifts and celebrations. Avoid debt. Remember, gifts do not have to be extravagant to be meaningful. In fact, gifts are usually more meaningful when they come more from the heart and less from the wallet.
Early in our marriage, my wife and I took a job in London, England. The move was a real stretch for us and money was tight. That Christmas we decided we would limit the value of our gifts to each other to $10 or less. We had a wonderful Christmas. The following week, while my coworkers were discussing their antique Belgian tapestries and fine jewelry, I was quietly grateful that my wife and I kept our spending under control. We had a very memorable Christmas free from the post-Christmas debt hangover some of my professional colleagues suffered.
Once your budget is set, focus on gifts that matter. At the risk of sounding like the dentist who passes out toothpaste on Halloween, may I suggest a couple of financial “gift” ideas.
The first idea is to open a Roth IRA for your minor child. Roth IRAs are great for kids. They have 50 years to benefit from the power of compounding tax-free growth. Of course, the child must have earned income during the year for which you make the contribution (allowance and gift money don’t count), but it doesn’t have to be W-2 wages. If you can carefully document the type of work, when it was done, for whom it was done and how much your child was paid, you should be good to go.
If you want to try this, contact Charles Schwab or another brokerage firm and tell them you want to open a custodial Roth IRA. They should be able to take it from there. Once the Roth IRA is funded, you can then teach your child how to invest. Literally, this is the gift that keeps on giving.
Another financial gift idea is to contribute to a 529 plan for your child. College tuition is a fact of life that many young people are going to face. Unfortunately, so is the plague of runaway student debt. A 529 plan allows you to prepare your child for that fact of life by setting aside money for qualified higher education expenses that will grow tax-free.
In 2018, you can give up to $15,000 per child before having to file a gift tax return (IRS form 709). If both parents contribute to the 529 plan, that threshold increases to $30,000 per child per year. However, if you really want to go all out, you can front load your contributions to a 529 plan with five years’ worth of contributions. In other words, you could give your child $150,000 toward her college education. Merry Christmas, indeed!
Please note that these gift ideas also work with relatively small dollars. Small, regular contributions add up and teach an ongoing saving and investing ethic. Learning how to save and invest is undoubtedly one of the best financial gifts you can give a child.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to firstname.lastname@example.org