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Financial Gift Ideas for Children and Grandchildren

Watching a child open a gift can be as exciting for the adult as it is for the recipient. But kids receive a lot of toys, many of which are underappreciated or quickly forgotten. Instead of, or in addition to buying toys for your grandchildren, you might consider setting aside some of your budget for financial gifts.

Here are some financial gift ideas for your children and grandchildren:

-- Stocks.

-- 529 plan contributions.

-- A vacation.

-- Cash.

-- Savings bonds.

-- Roth IRA contributions.

A thoughtfully crafted financial gift can benefit a child for years down the line, perhaps even after you're gone. Here are some ways to leave a legacy that will far outlast any lovable stuffed animal.


Giving a child a single share of stock can be a catalyst to become a lifelong investor. While one share might not be all that valuable on its own, the gift of learning to invest is priceless.

You can select stocks that a child or teen will recognize, such as Disney, McDonald's or Nike. Consider choosing dividend-paying stocks to help teach another basic investing lesson. As the price fluctuates and dividends accumulate over time without having to deposit additional money, a child can begin to understand the benefits of investing.

You might be able to use your company's direct stock purchase plan to gift one share to a child, or you could make an initial investment in a custodial account with a no-fee online brokerage and encourage regular investing. If you select a commission-free broker, there shouldn't be a charge to buy or sell a stock. This makes it easy to set up small deposits and stock purchases to get young people started with investing.

[READ:12 Money-Smart Gifts to Give During Retirement]

529 Plan Contributions

One of the best long-term investments for your money is a college education. However, the cost of a college education continues to rise, making it difficult for many students to afford it. Any help from parents and grandparents reduces the financial burden on students. A 529 plan contribution is a tax-efficient way to build savings for tuition, books and living expenses. The earlier contributions are made, the longer the education funds have to grow.

529 plans vary in quality from state to state, so check your state's plan to understand investment options and tax benefits. 529 contributions are not tax-deductible for federal returns, but the contributions may be tax-deductible on state tax returns. A 529 plan contribution grows tax-free until the money is withdrawn.

A Vacation

Perhaps the best thing you can give to a young child is your undivided attention. One way to maximize quality time with children and grandchildren is to invite them on a vacation. Family schedules are busy during most of the year, so coordinate with your adult children to find a date and convenient destination that works for everyone. If you can afford it, and to avoid unnecessary tension, offer to pay for the vacation with no strings attached. Consider making the trip an annual event where you can create lasting memories with your children and grandchildren.

[See: 10 Classic and Unique Retirement Gift Ideas.]


At some time during the teenage years, most kids start to prefer cash as a gift instead of toys or even gift cards. A crisp $100 bill will brighten the holiday of any 15-year-old. Cash gives teens the option to spend it as they wish, giving them the opportunity to budget and be responsible with their money.

Cash as a gift is a useful wealth transfer tool. For those who expect to leave wealth to heirs, it may be wise to begin gifting cash to adult children while still alive. Doing so lets you support loved ones while you're still able to see the benefit. The annual gift tax exclusion for 2020 is $15,000 per recipient, meaning you can give each adult child and their spouse up to $15,000 per year before there's a requirement to file the gift with the IRS. Above this annual amount, your gift counts against lifetime estate tax limits.

Savings Bonds

U.S. Treasury bonds are a classic option to give a financial gift to a child. Banks no longer sell bonds at branches, but the Treasury Department gives you two options to buy bonds as a gift, electronic and paper.

To give Series EE and Series I electronic gift bonds, the giver and recipient should set up accounts on TreasuryDirect.gov. You can transfer a bond to the recipient account after holding it in your account for five days. Another option is to buy Series I paper gift bonds when you file your tax return. If you're owed a refund, you can request to receive a portion of it in savings bonds in the name of the recipient using IRS Form 8888.

Savings bond returns are generally modest, so these gifts are better for teaching a young person about bond investing rather than achieving a significant return. TreasuryDirect has a website for kids, with videos, games and answers to basic questions about bond investing.

[Read: How to Open a Roth IRA.]

Roth IRA Contributions

Parents and grandparents who understand the compounding effect of investing early in life may want to open a retirement account for a child. You must have earned income to be eligible for an IRA, which makes this option most viable for working teenagers.

Working teens usually don't make enough money to have a significant tax burden. Therefore, traditional tax-deferred IRAs aren't very beneficial. Instead, open a custodial Roth IRA for the child. Regular contribution limits apply, and are capped at $6,000 or total earned income, whichever is lower. If you decide to contribute to a child's Roth IRA, keep in mind that most teens work for spending money or to accumulate savings for college, so retirement savings won't be very exciting to them. Offer advice with your gift, telling them it's best to let it grow until retirement. However, contributions to a Roth IRA can be withdrawn without penalty, which could tempt some teens to use the money for more immediate purposes.

Craig Stephens is a blogger at Retire Before Dad.

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