Investment Companies That Will Let You Give Stock To Kids As A Gift
There are several investment companies that will allow you to give stock as a gift to kids.
Unlike the options mentioned above, you dont have to have a custodial account, 529 plan or DRIP Plan to give the gift of stock with these companies.
Here are some companies that will help you buy stock shares to give as gifts.
What Is The Kiddie Tax Rule
You may have realized that investing for kids can serve as a tax loophole. Why not purchase a bunch of individual stocks and write off the investment by gifting it to your child? In 1986, the federal government passed a tax law known as the kiddie tax, preventing people from taking advantage of this loophole.
The kiddie tax requires parents to pay the marginal income tax rate on all unearned income. This special law applies to any kid under 19 or full-time students under 23. While the kiddie tax pertains to unearned income, it doesnt require children to pay a higher tax rate on salary or wages that they earn.
As a rule of thumb, the IRS allows the first $1,000 of investment income to go tax-free. The second $1,000 is taxable at the childs income tax rate. This rate is lower than what parents would pay under a marginal income tax.
Gift An Investment You Already Own
Stocks you already own makes the perfect re-gift! If the recipient likes the company shares theyve been given, they can let the investment ride. If they want to exchange them for something more their style, easy: Just sell the shares and use the money to purchase a different stock.
The logistics of gifting shares of stock are easiest if the recipient has an existing brokerage account into which you can transfer shares. You simply need to draft a letter of instruction to spell out what you want to move and where to send it. If the giftee doesnt have an account, you can set up one for them and shell be set with her first investing account.
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Harness The Power Of Long Investing Timelines
By starting early with investments, you position the kids in your lives for lifetimes of compound growth. That means even small investments that you make today can lead to big fortunes later in life.
Consider these hypothetical situations: Each year you invest the average $500 parents typically spend on Christmas gifts per child and earn an average return of 8% on your investments, which is about average for the S& P 500, accounting for inflation.
By the time your child reaches 18, that annual investment has grown to $18,725.12, almost $10,000 of which is pure investment returns. If they cashed out to help pay for college, it would cover more than half of the average $29,850 in student loan debt college graduates leave school with, according to The Institute for College Access & Success.
What if they decided to wait until they were ready to buy their first home? Waiting until they turn 33, the median age for first-time homebuyers in America, would let the investment grow to almost $60,000and thats assuming you didnt contribute a cent after they turned 18. Thats a pretty sizable home down payment.
How To Make Money With Etfs
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Exchange-traded funds are among the best investments for a childs investment account
Exchange-traded funds are some of the best investments to choose as a starting point when building an in-trust account. If you start out with exchange-traded funds, we recommend putting, roughly half of your contributions into a Canadian exchange-traded fund and the remaining half into an exchange-traded fund holding U.S. stocks. ETFs, with their relatively low management fees , have in large part eclipsed interest in mutual funds. As well, regulatory changes in Canada force brokers to disclose all the costs associated with mutual funds and other similar investments. That should further increase the appeal of ETFs.
2 things to avoid when making ETF investments for children
Get out of theme ETF investing
It pays to stay out of narrow-focus, faddish funds, all the more so if theyve come to market when the fad dominates the financial headlines.
Get rid of ETFs that show wide disparities between the ETFs portfolio and the investments that the sales literature describes.
What other investments for children have you made?
This article was originally published in 2017 and is regularly updated.
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How Do You Explain Investment To Kids
I’d like to leave you with one last tip.
Many people want to know how to explain investing to a child .
I want you to try this trick doing it will make the stock market make sense for your child much more than if you dont.
Bridge the gap between the stock market and your childs everyday life.
Do that by plugging up one of the biggest disconnects for kids when it comes to the stock market:
I wish so much that someone wouldve taken the time to point this out to me as a kid then I couldve seen the connection between companies I regularly saw out in the store and in TV commercials, and those intimidating, scary-looking stock tables.
Want Your Kids To Learn The Magic Of Investing For The Holidays Here Are Five Stocks They’ll Be Excited To Own
If you’re hoping your kids will grow up to be savvy investors, why not give them the gift of stock for the holidays?
OK, OK. Your kids won’t exactly be filled with glee if you tell them you passed on the toys altogether and bought them shares in a company instead. But adding stock in a company they love into the mix of gifts is a great way to get them eager to start investing.
Here are five companies that kids can get excited about owning.
Image source: Walt Disney World Resort
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Investing For Your Childs Future Expenses And Experiences
Maybe youre thinking about investing for things that arent too far into the future. After all, your children will go through a lot of importantand expensiveevents and milestones in their 20s and 30s.
If you want to save or invest money to help your child out with adult expenses or a down payment on their first house, youll want to put that money in an account thats a little more liquid than a Roth IRA.
These accounts wont have the timeor tax breaksto grow like a Roth account, but your kids will be able to access the funds penalty-free when they need them for major life events.
Money A To Z By Scott Alan Turner Ages 0 To 4
I never thought it was possible to create a board book about money for little ones that was entertaining, educational, and age-appropriate.
But Scott Alan Turner has managed to do just that with Money A to Z. This book will definitely be on my best gifts list for the youngsters in my life.
It gives kids a great concept of money and how it works, complete with fun characters and engaging illustrations.
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Two Tsx Stocks To Buy Now
Two TSX stocks that fall right into these categories for your child are Toronto-Dominion Bank and Nutrien . Both companies have been seeing massive growth over the last few years but especially in 2021. Inflation has given a rise in crop nutrient prices and is good for the banking industry as well.
TD stock in particular is a spectacular long-term option. TD stock expanded into the United States and has become one of the top banks in the country. Its also expanded its online presence, providing clients with ways of banking at home during the pandemic. Further, in this volatile economic environment, it has the most options among the banks for loan repayments.
As for Nutrien, the company was already one of the most undervalued TSX stocks for future growth. It has partnerships with highly populated countries like China and India, where crop nutrients are sorely needed. This continues to expand, as climate change impacts countries around the world. Yet it still remains the worlds largest producer or potash nutrients, with sales climbing higher and higher during the last year.
Tips For Teaching Kids About Investing
There are more resources available than ever for children and adults of all ages to learn about personal finance and investing. From school to social media to eBooks, the options are endless.
If their school offers a personal finance class or elective, sign them up, Phelan said. Not all schools require personal finance to graduate, but many still offer the class as an elective.
If theres no personal finance class at your childs schooland even if there istheres still plenty you can do at home to teach them about this important topic.
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The Best Investment Accounts For Kids
With all of that being said, some investment accounts are better for kids than others. Parents need to take growth potential, management responsibility, and risk into account before choosing the right investment opportunity. The following list considers a few of the best investment accounts for kids to help you get started:
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Custodial IRA
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UTMA/UGMA Account
Open A Custodial Brokerage Account
If the child youre buying for is a minor, you may want to set up a custodial investment account for them.
A custodial account is an account in which the funds are designated for the benefit of the child. However, the account is managed by the custodian.
Anyone can open a custodial brokerage account for a childeven if they arent related to the child. But know that youll need to have the childs Social Security number to do so.
If you dont want to be listed as the accounts custodian, you can always ask the childs parents to open the custodial account in their own name.
Anyone can contribute to a childs custodial brokerage account, even if theyre not the custodian. For more rules on the varying types of custodial accounts, see this article.
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This Stock Could Continue To Grow Strongly
If youre looking for a bigger kicker in your childs portfolio, you might consider a tech stock like Converge Technology Solutions. While some high-growth stocks have been in meltdown mode, falling about 50% from their highs, Converge stock has essentially traded sideways in the second half of the year. And, in fact, the tech stock has doubled investors money year to date.
The company has been doing a superb job expanding its offerings, making acquisitions, and improving the margins of its acquisitions. The small-cap stock has a long growth runway, as it continues to expand in North America and is just getting started in Europe. Its future stock price performance will depend on how well it executes going forward. Right now, 12 analysts are calling for an upside of 26% over the next 12 months based on their average price target.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium service or advisor. Were Motley! Questioning an investing thesis even one of our own helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
The Motley Fool recommends Brookfield Infra Partners LP Units. Fool contributor Kay Ng owns shares of Brookfield Infrastructure Partners L.P., Brookfield Infrastructure Corp., and Converge.
Discuss Stocks And Bonds
Introduce the idea thatin contrast to the savings account that your child may already havestocks are a variable-risk, variable-return investment. In the financial universe, stocks are classified as high risk, but along with that comes the potential for high returns. Explain that a stocks value can go up and down, depending on the growth and profitability of the company. Also, make it clear that risk in stocks cant always be predictedfor instance, when corporate records are tampered with or when CEOs lie. However, these events are outliers. Overall, the stock market has risen consistently in the last hundred years, offering solid returns.
A bond is a low-risk, low-return investment. Typically, bonds pay a small amount over the prime interest rate and are backed by stable institutions . You can buy lower-rated bonds that offer better returns, but they can default, and you cant necessarily count on getting the income when expected. If someone has given your child a gift of savings bonds, it can be a great jumping-off point to explain how this sort of debt security works.
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How To Open An Investment Account For Kids
Are you ready to open an investment account for your child? Each of the three accounts we listed above has its own advantages and disadvantages. However, custodial accounts provide the most flexibility because there arent limits on what your child can use the money for.
Once youve decided on the type of account to open, youll also have to choose the right brokerage firm. There are many online brokerage firms to choose from, and it can be challenging to choose the right one for your familys financial situation.
Before choosing an account, consider the following:
- What type of securities you want to purchase for your child
- The fees associated with the firm you choose, such as transaction costs
- The user interface
- The types of accounts available
- Any other features that are important to you, such as parental controls like limited access
When opening an account, brokers typically request personal information from their customers, including financial and tax identification information. The good news is that once you choose a broker and provide your information, you can open and fund the account in a matter of minutes.
Helping Your Child Choose Stocks
Once you have an account set up, its time to help your child learn about choosing investments. You can look at companies that your child might be interested in, such as Disney, or Coke. Talk about what makes a good investment, and discuss different options. If your child is a teenager, you can discuss the merits of dividend stocks as well, allowing him or her to begin learning about income investing. You can also look for Direct Purchase Plans offered by some companies, allowing you to save on transaction fees in some cases.
Consider funds as well. There is nothing run introducing a teenager to the concept of index funds and exchange-traded funds. Talk about the costs associated with funds, as well as the instant diversity that might be available in some cases.
Your child can go on a practice run, if you would like. There are several websites and smartphone apps that allow you to put together a hypothetical portfolio and track its performance. If you want, you can encourage your child to track investments he or she is interested in, just to get an idea of how they are doing. Read up on the companies of interest and encourage your child to consider various fundamental factors in addition to the technical aspects of how stock prices rise and fall.
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Have Them Invest Their Own Earnings
Once your child has a job and starts earning money of their own, consider having them invest some of their own earnings. Theyll be able to take even more ownership of their investments and understand the importance of fitting your investments in with the rest of your budget. For a teen thats earning money, Phelan recommends putting those funds into a custodial Roth IRA.
You can start this process even earlier if your kid earns an allowance. Together, you can walk them through the process of putting away some of the funds they earn into an account.
Investing For Kids: How To Open A Brokerage Account For Your Child
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Investing isn’t just for adults: If you want to teach your kids some valuable lessons about money and the power of investment growth, helping them open a custodial brokerage account can be a great start.
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Pique Their Interest With Companies They Know
The “buy what you know” maxim has been bandied about in investing circles for decades. The idea is to put money in companies you understand, and its key when teaching kids how to invest.
“This is important for everyone when it comes to investing,” says Jeff Mills, chief investment officer at Bryn Mawr Trust Wealth Management. “But in terms of teaching kids, if they understand what the business does, if they use the product, they can better understand why a stock price might go up or down.”
Kids today have two things going for them as future investors, Szostak says: They’re aware of product branding and they are skilled online researchers. “Ask your child what company they are curious about and invite them to spend 30 minutes researching its stock price with you,” she says.
Compare its price today to what it was worth one year ago or 10 years ago. Has it been volatile? How would your child feel owning the stock if the price fell?
“To take the lesson one step further, look up the dividend history and explain that for every share of stock they own, they receive the declared dividend amount,” Baer says. “Depending on your child’s age, you could even go deeper and discuss reinvesting the dividends to continue saving and growing the asset.”
