Personal Finance | December 16, 2021

Last-Minute Gift Guide

Last-minute holiday shopping can be a drag in the best circumstances. Throw in a lingering pandemic, rising prices, and a historic supply chain breakdown, and a lot of would-be gift givers may prefer to make do with a handshake or an on-camera nod this year.

But it’s not too late to give a meaningful gift—potentially one that continues giving for many years into the future. Financial gifts can make a real difference in a loved one’s life and aren’t likely to be delayed or lost in the mail. Here are options for everyone on your list, from small gestures to more substantial offerings.

For the kids

Kickstart their savings

A simple savings account is a gateway to teaching kids critical financial lessons—from wealth accumulation to the power of compound interest. Helping them compare statements from month to month can be its own lesson in financial literacy.

  • Learn about the Schwab Bank High Yield Investor Savings® Account.

Help them prepare for college

Such accounts can help children and grandchildren graduate from college with little to no debt burden—an important consideration as total student debt in the U.S. surpasses the $1.75 trillion mark. Specifically:

  • 529 college savings plans can provide federal tax-deferred growth and tax-free withdrawals for qualified expenses (including up to $10,000 a year for K-12 tuition1). Some states even offer tax credits or deductions for contributions to their 529 plans.
  • Coverdell Education Savings Accounts can provide federal tax-deferred growth and tax-free withdrawals for qualified expenses (including not just tuition but also school supplies, uniforms, and even room and board). You can contribute up to $2,000 per year if your modified adjusted gross income is less than $190,000 for married couples filing jointly ($95,000 for single filers), though the limit is lower at higher incomes. Contributions to Coverdells are not tax-deductible.
  • Compare college savings accounts.

Introduce them to investing
Want to help your child save more for their future while investing less money? Investing early is a great way to tap the potential power of compound growthOne way to do this is through a custodial account—an investment account that you set up and manage on behalf of your child until they reach adulthood (typically 18, 21, or 25 years depending on your state). At that point, the money automatically becomes theirs.

  • Learn more about the Schwab One® Custodial Account.
  • Help give the gift of investing with Schwab Stock Slices™. Once you’ve funded a custodial account, you can purchase fractional shares in any of America’s leading companies in the S&P 500® for as little as $5. Learn more.

Get them savings bonds

A classic gift for children, savings bonds are a great way to teach discipline and patience in investing. There are two main options:

  • EE bonds earn a fixed rate of interest for up to 30 years, making them attractive during periods of low inflation or even deflation.
  • I bonds earn a fixed rate of interest for up to 30 years—plus an additional inflation-adjusted rate that is revisited semiannually, which can help protect young investors if inflation increases.

Gains from all savings bonds are exempt from state and local income taxes—and may be free from federal taxes when the bonds are used for qualified higher-education expenses. Savings bonds are no longer sold at financial institutions but can be purchased online at Paper I bonds can be bought only with a refund from a federal tax return. The minimum purchase is $25 for electronic EE and I bonds and $50 for paper I bonds.

And don’t forget: Any financial gift to a youngster is an opportunity to educate them in the fundamentals of financial independence, such as budgeting, investing, and saving.

  • Check out the educational resources for kids over at Schwab Moneywise®.
  • Download Schwab MoneyWise™: The Game from the App Store®. It’s a fun, interactive way to build financial competence and confidence among teens 14 and older. 

For the grownups

Help them save for retirement

Family and friends can indirectly contribute to the Individual Retirement Account (IRA) of another person, though the recipient must have earned income equal to or greater than the contribution and must make the deposit themselves. In 2021, the contribution limit is $6,000 (plus another $1,000 for those age 50 or over).

And this isn’t just for grownups. Parents can establish and fund a custodial IRA for a child, assuming they have earned income equal to or greater than the contribution. Of the two main IRAs—traditional and Roth—the latter might make more sense for children, who are unlikely to meet the Roth IRA income limitations and whose long investment horizons make the tax-free withdrawals in retirement all the more beneficial.

  • Learn more about Schwab’s Custodial Roth IRA.

Help them buy a home

Surging home prices have made it difficult for first-time home buyers to get into the real estate market. Those with the resources to help a loved one with a down payment are subject to the annual gift-tax-exemption limit of $15,000 for 2021, or $30,000 for spouses “splitting” gifts. Anything over those amounts counts against the current lifetime gift-tax exemption of $11.7 million.

For the person who has everything

Support their cause

Charitable donations in another person’s name can pay dividends in more ways than one.

You can contribute cash (or even an old car) to a qualified charity in someone else’s name and still capture the tax deduction, assuming you itemize. You can similarly donate appreciated bonds, stocks, or shares of an ETF or index mutual fund. Not only will you avoid taxes on any gains but you can deduct the full market value of the gift.2

Clients who want to instill the charitable spirit in their children may want to consider donating to a charity of their kids’ choosing in lieu of one or more holiday presents.

  • Learn about Schwab Charitable.

1Some states may tax you on distributions for K-12 tuition. Speak with your tax advisor for your state’s tax rules.

2Charitable deductions are generally limited to between 20% and 60% of your adjusted gross income depending on the type of asset and the type of organization to which it is contributed. For 2021, there are special rules for cash donations. See Four Ways to Maximize Charitable Giving Impact in 2021.