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One of the most coveted holiday gifts of the year might be unexpected.
Some 65% of Americans want financial investments such as stocks and cryptocurrency as gifts this year, according to a recent survey of more than 2,000 adults from MagnifyMoney.
In addition, about one-quarter of those surveyed said that they’d prefer to be given an investment over a gift card, and even more would prefer a financial gift to books or stocking stuffers.
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“I think people are thinking about money, for better or for worse,” said Ismat Mangla, senior director of content at LendingTree, MagnifyMoney’s parent organization, adding that the stock market has performed well even with a few Covid-induced dips. “There’s nothing quite like a gift that’s going to continue to grow in value.”
Investing in the stock market is a great way to exponentially grow a monetary gift; this year through Thursday’s close, the S&P 500 Index is up more than 24%.
Gifting stocks
It is relatively simple for parents to purchase stocks for their children.
“If you’re looking at it as a Christmas gift or a holiday gift for a young person, I think purchasing stock is a great way to introduce them to investing,” said Judson Meinhart, a certified financial planner and manager of financial planning at Parsec Financial in Winston-Salem, North Carolina.
To do so, parents need to set up a custodial brokerage account — often called a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gift to Minors Act) account —for their children or another minor in their care. Then, guardians can buy the stocks they want via the account for their kids.
When the child who the account belongs to comes of age — either 18 or 21, depending on the state in which they live — they gain full control and can use the money as they please.
If you’re looking to gift to an adult friend or family member, you can generally transfer shares from your brokerage to theirs if you have their account information.
You can also gift stock that you currently own to non-profit charities as a donation, instead of writing a check.
It should be about the spirit of doing it.
Mark Jaeger
director of tax development at TaxAct
This comes with certain tax advantages that make it attractive. If you give assets directly to a qualified charity, they don’t have to pay capital gains.
Still, you should only give stocks to charity because you genuinely want to make the gift, according to Mark Jaeger, director of tax development at TaxAct, a software provider.
“It should be about the spirit of doing it and then wanting to do it to support a specific charity,” Jaeger said.
Cryptocurrency gifts
It’s also generally simple to gift certain cryptocurrencies, especially the most popular such as bitcoin and ethereum.
Companies such as Coinbase, Binance, CashApp and Robinhood allow users to gift different coins to others, sometimes through an email gift card, if the recipient doesn’t yet have an account or digital wallet. To access the gift, they’ll need to set one up that can store the cryptocurrency.
These platforms also allow people to send portions of coins, which is helpful as many cryptocurrencies are very expensive. For example, one bitcoin is currently worth more than $47,000.
You can also gift people digital wallets either as a standalone or with cryptocurrencies, as they’ll need them to hold and track their new assets.
While it may seem risky to give someone crypto as a gift, it might actually be a great way to help them try out the asset class, according to Mangla.
“Getting a gift is a good way to explore it without having to spend your own money,” she said.
Other options
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If you’re looking to gift a child money that will be invested and grow over time, there are a few other ways to do it.
You could help contribute to a 529 plan for their future education. If your child has a job, you could also help them establish a Roth individual retirement account and contribute either money or gift assets that way.
Such plans don’t offer the same flexibility as a custodial brokerage account. If the child ultimately decides not to go to college, it can be difficult to access the money in a 529 plan without penalty. With a Roth IRA, they need to have earned income, and there are limits on how much they can contribute and what they can withdraw before retirement.
With a custodial account, there aren’t any limits on how the child can use the money. Such an account also gives parents or people gifting stock more options on what they can give.
Other considerations
If you’re gifting or donating stocks, there are a few things for both giver and receiver to consider.
It can be beneficial for people to give stocks to avoid paying capital gains taxes, but it means that you’re passing a potential tax along to whomever you’re gifting. This could be worth it, though, if the person you’re giving to is in a lower tax bracket. Depending on their income, they may pay a 0% capital gains tax.
And, if you gift more than $15,000 per year, including stocks, you must file extra paperwork with the IRS. You may also be subject to a gift tax, but only if you’ve gifted more than the current lifetime cap of $11.7 million.
If you want to make the most of gifting stocks and other assets, a financial advisor can help you with the process.
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