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An Expert’s Guide to Gifting Stocks

Whether you’re giving to a child or a nonprofit organization, the gift of stocks will have a lasting impact.

Photo courtesy of Austin Distel via Unsplash

When you ask your children or grandchildren what they want for the holidays, their list probably includes toys, electronics and items you don’t even understand. Most likely, they will enjoy the present for a few days and move on to the next thing. Wouldn’t it be great to give a gift that will last a lifetime? Have an impact? Give the gift of sharing in the growth of our economy over the decades ahead. Give the gift of stocks.  

What Are the Benefits of Gifting Stocks to Children? 

I understand the joy on a child’s face when they get a train set or a bicycle. But will they shout with joy when you explain that they now own a portion of the earnings and cash flow from a bunch of companies? Probably not.

The joy from gifting a stock will not be immediate. But teaching a child about investing is an opportunity to talk about what the future may bring them, how people and companies create wondrous new technologies and what their role might be in that growth and innovation. That can be exciting. It’s a chance to discuss the benefit of delaying gratification today for a better tomorrow.

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Gifting stocks teaches the importance of saving and investing for the future. Patience. Discipline. Old-fashioned ideas, but like the compounding of interest, they have such impact over time.

What Are the Best Ways to Gift Stocks to Children? 

1. Custodial (UTMA) Accounts 

Open up a custodial brokerage account for the child you’re gifting to. Discuss the products or services they like and the companies behind them. It will also be fun to discuss the performance of the stocks you choose. Perhaps you can have an “investment committee” meeting once a month. For extra credit, compare the return of the individual stock with an S&P Index fund. Both you and your kids might be surprised by the lessons you learn.

2. 529 Plan 

Most parents are thinking about saving for their kids’ college education. The most efficient way to start saving: Open a 529 college savings plan account with your child as the beneficiary. Relatives or even friends can also make gifts. You can invest in diversified stock funds, the earnings grow tax-free and qualified withdrawals are free from federal and state income taxes. 

3. Custodial Roth IRAs

Many kids earn money from part-time or summer jobs, such as working as a camp counselor. If they have earned income, a parent can make a gift to a custodial Roth IRA. Let’s say a child earned $1,000 over the course of a year. They can keep that money, while you gift $1,000 to their Roth IRA, which can be invested in stocks. The money grows tax-free. They will thank you in 50 years. 

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Wow, 50 years! That won’t bring an immediate scream of joy. I did this for my girls with their first jobs and often got a “thanks mom, what’s for dinner?” But now that they are in the working world and are contributing to their own 401(k)s, they appreciate the Roth IRAs.

Other Considerations for Gifting Stocks

Can I Gift Stocks to Nonprofits?

Giving stocks that have appreciated quite a bit over the years to a nonprofit is a very effective strategy. By gifting these securities directly, you eliminate paying the capital gains you would have incurred if you had sold the securities and donated the cash proceeds, which may increase the amount available for charity by up to 20 percent.

What About Cryptocurrencies? Do Those Make Good Gifts? 

That’s a little trickier. I would stick with traditional stocks or funds that have a long history of creating wealth. Cryptocurrencies are more speculative—maybe not a great gift.

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So, as you are finalizing your holiday gift list, add stocks next to the socks. Giving the gift of stocks will have a lasting impact on a child or nonprofit organization. 

Shari Greco Reiches is a wealth manager and behavioral finance expert. Shari is cofounder and chief visionary officer of Rappaport Reiches Capital Management and the author of Maximize Your Return on Life – Invest Your Time and Money in What You Value Most.

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