One of the most memorable gifts I ever received for Christmas was a roll of toilet paper. I think I was probably 9 or 10 and in 4th grade.
We always had two celebrations: Christmas eve with mom and dad and Christmas day with the extended fam, at Grandma and Grandpa’s house in Tillamook, Oregon. Cousins, aunts, uncles, new boyfriends and girlfriends of the aforementioned, random strangers maybe, etc… And the whole crowd fueled by insane amounts of food, dessert, booze and nicotine. As a child it was an exhilarating event. As an adult you either hated it or loved it.
So here’s the thing, everyone opened gifts simultaneously; with 40 or so people taking turns viewing was impractical. But every once in awhile, a fantastic electrifying present would draw the room’s attention.
That was the roll of toilet paper from my grandparents. You see the roll didn’t look quite as tight as a new one…had the look of being re-rolled. The end tissue flapped freely, not glued down. So I started to play with it and unroll it, and low and behold a $1 bill fell out, and as I continued to unroll the paper more dollar bills fell out, in fact dozens fell out and some $5s too, and the bills piled up around me, while the entire room gaped with astonishment and a touch of jealousy.
So here are some financial-minded gift ideas for Christmas and for children:
– Roll of toilet paper (see above).
– Investment account (see below).
– Runner-up: Monopoly.
Possibly the most impactful effective way to teach children about the stock market is to open an investment account on their behalf. This is known as a custodial account. The adult controls the account until the minor reaches the age of 18 (you can extend this to 25). Also, this could be a gifting strategy for other loved ones, like your niece, nephew or grandkids. Now we’re not going to just open the account, you want to fund it with some stock pics.
So think about the technologies, toys or hobbies that touch your children and associate them to their respective public companies (needs to be a publicly traded company). If they’re on Instagram, could be Facebook. Playstation, then buy Sony. They have an iPhone, then buy Apple. Barbie, buy Mattel. Watch Netflix, then Netflix. Etc. Then when you open the account, consider buying one share of each company.
Now have them track their portfolio on an ongoing basis. For their birthday, offer to buy them more stock, but have them assist in the decision of which stocks to purchase. As part of this exercise, have them analyze the performance of each stock/company since Christmas. Ask them and discuss with them why some stocks perform better than others. Finally – and I’d be remiss if I didn’t say this – consider buying an ETF of the US Broad Stock Market (ex SCHB), so they can see how their individual companies/stocks perform against the broader market.
A spin on the above, is opening a 529 College Savings plan and sharing those numbers with your kids; mine are always excited to hear what the balance is.
If these two finance gifts are too much work, then default to Monopoly and enjoy with family.
Have a safe and Happy Holiday Season. Cherish this time with loved ones and family, because in the end they matter most.
Questions relating to this column can be directed to Sean Hathaway, Financial Planning and Investment Advisor; (971) 409-4180; or visit: www.HathawayFinancial.com.
Happy holidays! As we head into the holiday season of family, parties and fun, also keep in mind this is the time of year to revisit important personal finance and tax related matters (I know…sorry…but it has to be done). All these areas can be nuanced based on individual circumstances, so if you’re not sure about something, take 15-30 minutes to chat with your financial advisor or tax accountant; a few minutes that could save $1000s.
401k and IRA Contributions
If you participate in an employer 401k this is generally the time of year to revisit your 401k contributions; raise them to the max if you can. Generally, you want them to be spread out evenly over the course of the year to ensure the maximum employer match.
You can contribute up to $6,000 annually to an individual IRA. Technically, deadline is April 15, but good to just get it done now.
This is also the time to review employer provided health insurance and supplemental life insurance plans.
Charitable Giving
December 31 is the deadline to donate to a charitable cause and still get your tax deduction. But remember the standard deduction for married couples is $24,400 ($12,200 singles) for tax year 2019. So in order to get a tax benefit for charitable deduction, your total itemized deductions, which includes charitable, need to exceed the standard deduction.
Some people are implementing a “bunching” strategy; that’s where you provide a larger charitable donation every 2 or 3 years, as opposed to annually. So instead of $15,000 per year, you might donate $30,000 every 2 years, which enables you to exceed the standard deduction of $24,400 and receive a larger tax benefit.
You could also consider a Donor Advised Fund, which would allow you to make a large contribution in one year, take a tax deduction, but then distribute the funds to charities over the time period you desire.
Gifting or 529 plan contributions
A single person can gift up to $15,000 in 2019 to each person or $30,000 as a married couple. So consider this, if you have 2 children and really want to kickstart their college savings fund you could “gift” $30,000 per child to a 529 college savings plan. A $30,000 gift today would be worth over $50,000 in 10 years (assuming a 6% annual return).
Gifting is an efficient way to share your wealth in a tax free manner.
Required Minimum Distributions (RMDs)
If you are age 70 ½ do not forget to take RMDs from your retirement accounts, including 401ks and IRAs (not required for Roth accounts), or incur up to a 50% penalty on the distribution if you forget.
If you are giving to a charity, it is likely advantageous to directly contribute your RMD (up to $100,000) to the charity, then you do not have to recognize any income for the RMD! This is known as a Qualified Charitable Distribution or QCD, and it’s a great deal.
General
The above items are fairly common, but there may be other issues unique to you and your financial situation. Take a few minutes to think about it prior to year end and don’t forget to grab some exercise between all the meals and holiday cocktail parties.
Questions relating to this column can be directed to Sean Hathaway, Financial Planning and Investment Advisor; (971) 409-4180; or visit: www.HathawayFinancial.com.
