The clock is ticking. It’s already December, which means you better get moving on that financial ‘to-do’ list.
As we count down the days remaining before year end, I’m going to give you a sneak peak at the smart moves personal finance experts like myself are making in their own accounts. I’ll share the inside scoop so you can decide whether these moves might make sense for you, too.
Use family gifts to transfer wealth
The first smart move is family gifting. First, the technicalities. In 2024, you can normally give up to $18,000 in gifts per person per year without estate tax consequences like paying tax or having to report the gift (next year the amount rises to $19,000).
This is a yearly use-it-or-lose-it proposition. Families wanting to spread the wealth should take advantage of this gift provision every year, especially if they have ample funds (e.g. they are in no danger of running out of money for their own retirement needs) or want to reduce their wealth to avoid potential estate taxes down the road (right now, estate taxes kick in at roughly $14 million of wealth per person).
When does gifting make sense?
Here’s a typical scenario where gifting comes into play.
Teresa (not her real name) has two adult children in their early 30s. Both are working and covering their bills, but there isn’t much left for retirement savings or extras. The older child is saving up to buy a home. Teresa gifts her $18,000 that she can use toward a down payment. The younger child is happily renting for now. Teresa gifts him $18,000, with $7,000 going into his Roth IRA as a 2024 contribution while the remaining $11,000 is directed toward his individual investment account. What an incredible gift! The Roth will grow forever tax-free, and the remaining funds are used to boost her son’s emergency reserve and beef up a growing investment nest egg.
Gifting now or later?
Of course, many people put off gifting and don’t transfer wealth until after their death. And frankly, that makes the most sense if you’re not sure you have enough money to cover your own retirement and health needs (who ever thought we would be living to 100)!
On the other hand, if you are confident you have enough to spare, consider lifetime gifts that let you help your loved ones while they are young enough to benefit. Gifting money for a house down payment makes more sense when your kids are in their 20s or 30s. They might not need that gift as much when they are 75!
Don’t forget gifts to 529 college accounts
A really great way to help the younger generation – and especially grandkids – is through gifts to a college 529 savings plan. You can give $18,000 to each child’s plan before year end and take advantage of the unbeatable tax and other benefits offered by these amazing accounts.
Gifting appreciated assets
Want a final tip? Gifting cash is always easiest. But do consider gifting appreciated securities (e.g. investments that have gone up in value since you bought them) to younger family members in a low tax bracket. They can often sell those holdings and pay significantly less in capital gains taxes than you would (just remember to check with your tax advisor first).
The takeaway
Year end is a perfect time to explore family gifting strategies. Combining the joy of gifting with serious tax savings can make for an extra smart year end money move.