Harlan Vaughn December 15, 2021
Here’s an interesting stocking stuffer this holiday season: shares of stock.
If someone in your family wants to start investing, or you’re looking to build generational wealth, gifting stock can be a powerful solution.
That way, the person receiving your gift can follow the financial markets and how their stock reacts to different events while growing over time. If the gift is for a child, they can take over the account when they’re old enough with the added benefit of time in the market.
Let’s look at how to gift stocks this holiday season.
Can You Give Stocks as a Gift?
Yes, you can absolutely gift stocks. There are a few ways to do it.
The first scenario is when you have stock that already has gains. A gain means the price of the stock has gone up and costs more than what you bought it for. You can gift those gains to another recipient without paying taxes, particularly if the recipient is in a lower tax bracket.
“As a general rule, you want to give stock that’s appreciated, not only to charities, but to individuals,” says Michelle Kaizen, Managing Director, certified financial planner, and CDFA at HCR Wealth Advisors.
Another way to gift stock is to set up a custodial account, sometimes referred to as an UGMA/UTMA account in reference to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, which is intended for children under age 18. There are no contribution limits, though accounts must be funded with after-tax dollars. This is a way to create generational wealth because the child will eventually get full control of the account when they’re an adult (exact age varies by state, but is usually between 18 and 21).
You can give $15,000 per year to anyone without filing a gift tax return. This is a good way to set someone up with an investment account or transfer stock without tax implications.
Of course, everyone’s situation is different. Be sure to consult a tax professional for your specific situation.
The only caveat with these methods is that you usually need to have the recipient’s Social Security Number to set up an account or have their account number to transfer stock into their existing accounts.
How to Gift Stocks You Already Have in Your Account
You’re able to initiate transfers of stock, mutual funds, and other securities you hold in your accounts to various other account types. Again, the biggest logistical hurdle is that you’ll need the recipient’s Social Security Number or account number to set up the transfer, which can take the surprise element out of the gift. If there’s a way to get the information from another family member, such as a parent or spouse, finding extra stock in an account could be an exciting gift for the recipient. If they don’t already have an account, you could open for them as part of your gift.
You can start the transfer process online in your own brokerage account. If you can’t find the option online, contact your brokerage for assistance. “It’s super easy to make a transfer. It’s a very seamless process,” says Katzen.
“If you want to transfer a stock you don’t already own, you’ll need to purchase it in your account before you transfer it to someone else,” adds Stephen Akin, registered investment advisor at Akin Investments.
Which Accounts Should You Open as Gifts for Family Members?
There are several accounts to choose from.A 529 account is a college education savings plan sponsored by a state or state agency, but keep in mind that these accounts usually only accept cash, although you can purchase stocks inside of them. Recipients can use the funds for education-related expenses at most colleges and universities. “This is a great account because the value of currency keeps going down and the cost of education keeps going up,” says Akin.
Custodial accounts (sometimes referred to as UGMA/UTMA accounts) are another option that transfer to the recipient when they’re of legal age, which is between 18 and 21 in most states. These accounts can be used for any purpose, although it’s important to keep in mind that any gains are considered income and the recipient will have to claim them when they’re old enough. Also, this account is considered an asset and will have to be reported as part of any financial aid process. If the account has a lot of money in it, it could prevent the recipient from receiving financial aid, grants, or certain scholarships.
You could also open a Roth IRA account. With this account, you can only contribute as much money as the minor made in a calendar year. The income can be from any source, such as mowing yards or shoveling snow, but has a limit whereas other account types have higher (or no) contribution limits.
Another thing to note is that gifts to individuals are considered non-marital assets, which could be important should the recipient ever go through a divorce.
What About Giving to Charity?
Each charitable organization works a little differently. “Giving stocks to a charity is the best way to give to charity because it’s a win-win on both sides. They’d have to give you their account details and not every charity accepts stocks, so be sure to ask if that’s something you want to do,” says Katzen.
“If you bought a stock for $10 and it’s worth $1,000 today, the charity would get the entire $1,000, and you’d get to utilize it as a $1,000 charitable contribution on your tax return. So both sides win this way.”
Gifting stocks is an excellent way to pass on money and create generational wealth. It’s also a great way to give to charitable organizations. There are various account types, each with their own limits and ways to transfer money. In most cases, you’ll need personal information about your recipient to initiate a transfer, such as their Social Security Number or account information.
PRO TIP You can legally gift up to $15,000 per year to any individual. Keep in mind, you’ll need some personal information to set up a new account – and time in the market may be the best gift of all.
It’s also an opportunity for someone to learn about investing and to get a big financial boost for crucial life moments, such as attending college or getting married. Consider gifting stocks or opening a stock account for an individual if this sounds appealing or you want to create generational wealth within your family. Be sure to weigh the tax implications and consult a professional if you have questions about your specific situation.