How To Buy Stock As A Gift For Child __EXCLUSIVE__
In general, investors make money in one of two ways. Either the stock price increases (which results in a capital gain for investors when they sell), or the company shares its profits with investors in the form of dividends.
how to buy stock as a gift for child
The good news is that there are plenty of options that will help you buy stocks for the children in your life. Rather than buying stocks through an individual brokerage account, you can take advantage of other investment vehicles.
Another way for adults to buy stocks for a child is to simply use their own brokerage account. You can buy stock in your own account, knowing that any profits from that stock will go to the child.
A custodial account is a type of brokerage account that an adult opens on behalf of a child in their life. The adult, known as the custodian, manages the account and makes all of the investment decisions. Then, once the child reaches adulthood, they take control of the account.
For gifts into your account, how the giver sends your gift determines how it's handled. For example, if a relative wants to transfer securities from an outside brokerage account into your Fidelity account, he or she should contact the outside firm. If you'd like to gift shares or securities from your Fidelity account to another Fidelity account, or if you want to send a gift outside of Fidelity, there are a few ways to make this happen.
Receiving shares: If a sender wants to give you shares (stocks, mutual funds, or other securities) from an outside firm, he or she needs to contact that firm to verify delivery instructions. In addition to following the firm's specific instructions, the sender may need to provide the firm with these details:
Sending shares: Your request to gift shares from your account must be in writing. You'll need to draft a letter of instruction with some specific information based on where and how you're sending your gift.
That may not be apparent when you give the gift. But as time passes and the stock rises in value, the child will come to realize the power of investing, and that may pique their interest in continuing to invest.
Gift tax. In an interesting twist, gift tax is the responsibility of the giver and not the recipient. And that tax can be as high as 40% of the amount of the gift given! But not to worry, the IRS grants an annual exclusion on relatively small gifts.
For 2023, you can gift as much as $17,000 to one individual. You and your spouse can gift up to $34,000 to that same individual. Any amount given that exceeds those thresholds may be subject to the federal gift tax.
Buying shares of stock as a gift, especially if it involves only one or two shares, may require opening an account or purchasing a gift card to allow the child to purchase stock in a favorite company.
A limitation to be aware of is that individual states sponsor 529s. Investment opportunities may be limited to exchange-traded funds (ETFs) offered within the plan, however, you may be able to gift shares in certain ETFs for the 529 plan through some of the providers below.
You may be able to open a custodial account to purchase and hold the stock for your child. You can do this under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gift to Minors Act (UGMA). The account will be opened for the benefit of the minor but managed by a parent or guardian.
Greenlight+ Invest enables children to buy stock in their favorite companies. They can begin investing with as little as $1, with no trading fees. The plan can even accommodate fractional shares for your child to purchase tiny slivers of higher-priced stocks in their favorite companies.
Acorns offers investing for children through their Acorns Early plan. You can open an account for the entire family for just $5 per month, including investment accounts for yourself and multiple children.
You can purchase gift cards in denominations between $1 and $500. You can choose from any stock offered by Stockpile for the gift card. Physical plastic gift cards are sent by mail, but you can also do an electronic gift card by text, email, or print at home. You can also use gift cards to invest in ETFs.
Parents can set up a custodial brokerage account for their kids and transfer stocks, mutual funds, and other assets into it. They can also buy assets directly for the account. When the child reaches a certain age they take ownership of it.
Dividend Reinvestment Plans, or DRiPs, are another option for gifting stocks. These are plans that automatically reinvest dividends from stocks, which allows the stock to grow with compound interest.
When gifting stocks to a spouse, there are generally no tax implications as long as both people are U.S. citizens. A spouse can either gift a present interest or a future interest in shares, meaning the recipient spouse gets the shares immediately or at a specified date in the future.
Anyone can transfer shares of stock to someone else if the receiver has a brokerage account. This type of gifting can be done with basic personal and account information. One can either transfer shares they already own, or buy them in their account and then transfer them. Some brokers also have the option to gift stocks periodically.
Individuals can also buy a stock certificate and gift that to the recipient, but this is expensive and requires more effort for both the giver and receiver. To transfer a physical stock certificate, the owner needs to sign it in the presence of a guarantor, such as their bank or a stock broker.
Gifting stocks to family members can be a better way to transfer wealth than selling them and paying taxes. For 2021, up to $15,000 per year, per person, can be transferred through gifting of cash, stocks, or a combination. This means a couple can gift $30,000 to one individual, free of the gift tax.
Gifting stocks is relatively straightforward, but there are some things to keep in mind. In addition to the $15,000 per year gifting limit and the capital gains tax implications of gifting, timing of gifts is important, and gifting may not always be the best choice.
Also, there is a lifetime gift exclusion for federal estate taxes, which was $11.58 million in 2020, which can be used to shelter giving that goes over $15,000. However, this is not a great tax option, due to the ways gifts and inherited stocks are taxed.
There are a few things to be aware of with the capital gains taxes. If the stock is gifted at a lower value than it was originally purchased at, and sold at a loss, the cost basis for the recipient is based on the fair market value of the stock on the date they received it.
Gifting stocks is a unique idea that may have benefits for both the giver and the receiver. As you plan for your future, you may decide to build up a portfolio of stocks that you intend to give to your children, parents, or others as you grow older.
You can easily start investing online with SoFi Invest. The app lets you quickly buy and sell stocks right from your phone. You can also research and track specific stocks, and see all of your investing information in one simple dashboard.
That being said, there are a few flexible options you may want to check out if you want to help children invest in the stock market. One of the easiest ways to gift stock to a child is through a UGMA custodial account.
But if you want to gift stock to a child, the process can be slightly more complicated. A lot of adults tend to set aside stock within their existing brokerage accounts with the intent to pass those shares along after the kids they love have grown up.
The only real drawback here, apart from limited choice and rigid withdrawal rules, is that 529s have contribution limits. These tend to be aggregate limits set by each state. But you need to be aware when investing for a child that, by choosing a 529, your savings potential will be capped.
Because the gift tax is per person, you could gift $17,000 worth of stock to your son, $17,000 to your daughter, and $17,000 to your cousin all in the same year without having to report the gifts to the IRS.
When it comes to giving stock, both you and the recipient may face capital gains taxes. Because of this, you should factor these into the decision of whether you gift stock or how much you gift at a time.
For example, grandparents with five grandkids can give up to $160,000 in gifted stock and cash (or other assets considered as the best investments to own) per year ($32,000 per grandchild) without needing to pay gift taxes.
One way around this gift tax involves setting up a trust. You have several examples like Irrevocable Life Insurance Trusts (ILIT) where you can transfer wealth in a tax-smart way through a life insurance policy.
Likewise, you can use other types of trusts to donate appreciated stock that hopefully continues its past behavior and results in a positive future performance. Though, as with all stocks, past results are no guarantee of future performance.
You can attach limitations to this through use of trusts, but simply gifting a stock portfolio or even individual investment from your financial institution to their account will not place limitations on how they use the funds.
On the other hand, if the stock has gone down in value, you might think about selling it to recognize a capital loss and transferring cash to her instead. This gives her money for her personal use while locking in a capital loss for yourself.
Consider opening a Greenlight Card + Invest account to start investing in a custodial brokerage account for your kids today. The first month is free to trial the product and see if it meets your needs for giving a financial gift to kids.
You may have an option to gift shares or securities you own directly to the recipient once you have the account number, Social Security number and any other details of the receiving brokerage requests for their transfer services.
Investing for kids can prove a great way to gift this year. Consider reviewing the following custodial brokerage accounts in the table with special highlights on about a select few apps beneath. 041b061a72