Investment Gifts for the Holidays – Part II

by Dual Income No Kids on December 1, 2009 · 0 comments

Holidays and the closing of another year are a good time to think more extensively about improving your families bottom line. In this regard you might consider three options, these require more time and more money than the more traditional gifts features in our last post.

1) Open up a ROTH IRA for Your Children. If you have children who have some sort of earned income, it’s relatively simple to set up a ROTH IRA for them. Some might wonder if it makes sense to fund your child’s retirement, but the long term pay off of even some modest funding is substantial. For example if you fund your child’s IRA with $500 when the kid is 18, and the investment compounds at 5% per year, the final total would be $4,953 by that child’s retirement at 65. My money blog has a pretty good write up of the ins and out of this options, it’s worth have a look at for more information. Note that you can also get custodial accounts for all sorts of bank products, not just ROTH IRAs.

2) Consider Income Shifting. The holidays are a great time for estate planning, and if it benefits your financial situation, you might consider income shifting.

Income shifting works when one family member in a high tax bracket transferring property to a family member in a lower tax bracket, thus saving a substantial percentage on taxation of the asset. For example, if a family member appreciated in value, that taxpayer would have to pay taxes on that asset at the tax percentage for their bracket – let’s say it’s 33%. By shifting ownership of that stock to another family member, it would be taxed at the lowest bracket – a 10% capital gains tax.

Income shifting is generally utilized by higher income families who want to reduce their taxable income but who want to keep the wealth in the family. Its complex and probably should not be attempted without professional advice, but timing transfers for the holidays can be a nice treat. For more information on this, check bankrate.com or Concepts in Federal Taxation 2009.

3) Score Some Cheap Real Estate. A blogging colleague of ours put together a neat little ebay investment store. The coolest part about its that it generates results for listings for real estate on ebay that are selling for less than $5,000. So, if a loved one is really into real estate, you could pick him or her up a 1 or 2 acre lot, some desert land or even a super cheap house! One thing to keep in mind is that real estate selling for less than 5k is cheap for a reason – most of the time its not in a good part of the country. But, that said, it could be a fun fling for the holidays if you’ve got some extra money to spend.

Happy Holidays,

James

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