Giving stock to relatives is definitely not the Do It Yourself project it might have been in previous generations. Employees should consider speaking with their accountant or otherwise obtaining tax advice.
Giving a gift of stock seems like a quaint idea from the 1960s. Back then the idea was to help ensure a child’s future by providing something of value that would grow as they did. Parents gave their grandchildren stock certificates and some parents even bought annuities from Gerber. But employees may want to know that giving stock is still possible. In fact, Gerber still offers life insurance plans that appreciate in value. Importantly, employees may want to know that they can out do previous generations by donating to children’s college funds.
Here are a few things to know about giving stock and donating to 529 Plans. First, giving stock to relatives is definitely not the Do It Yourself project it might have been in previous generations. Employees should consider speaking with their accountant or otherwise obtaining tax advice. There may be big implications for transferring stock owned by the employee to the child, whereas purchasing a stock certificate not previously owned may have less implications. Let’s break that down a little farther. Giving a stock certificate is still a gift option, even though stock certificates themselves are nearly obsolete. Once upon a time, Disney gave stock certificates that were frame worthy, including adorable cartoon characters. Now, stock certificates for Amazon and other baby supply companies can still be found for sale, but the need for a certificate has evaporated. Even Disney retired its stock certificate program in 2013. You can still request stock certificates from the companies in which you invest, but brokerage firms have made those certificates unnecessary as they maintain ownership records electronically. That doesn’t mean you should toss out any old stock certificates you currently have, as some are collectors’ items. So buying stock in the name of a new baby or child is still an option.
Transferring stock to a child or relative brings up issues of basis and capital gains taxes. And the key may be that in some cases capital gains taxes may transfer to the recipient of the stock. This issue of capital gains tax being passed to the recipient may not be present in the case of stock bought for the child. Other issues involved with buying stock may include transfer fees, brokerage fees and other transaction costs.
Employees who want to help make sure that their relatives are well funded for future education plans may want to consider donating to the child’s college fund. For most children, the best option for investing for their future educational needs is a 529 savings plan. These accounts have special tax advantages, including earning interest in a tax-deferred manner and allowing tax-free withdrawals for qualified educational expenses, i.e., tuition, books, housing, supplies and room and board. 529 plans are owned by parents, so any family discord may be better handled by other savings, custodial accounts or inter vivos transfer trusts. Certain rules apply to gifts larger than $15,000 or $75,000 over 5 years so employees who wish to make larger transfers should consult with an accountant or tax advisor familiar with gift tax reporting.
Additionally, its worth noting that while most of the tax benefits for 529 plans fall to the parents for investing in them and the children when withdrawing funds for college expenses, some states provide a tax credit to those who contribute to 529 plans. The timing of those credits can vary state by state as to what triggers the credit (e.g., when the 529 plan is used versus at the time the contribution is made). This tax credit may be especially helpful for employees who sit on the cusp of a tax bracket. Plan sponsors may want to keep in mind that the number of childless couples has risen to nearly 25% of the population. With that rise, the appeal of donating to 529 plans may go well beyond employees who are grandparents and into the Aunts and Uncles among your employees.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal