Selecting The Stocks To Gift
When it comes to gifting stocks this holiday season, it’s crucial to choose wisely. According to Megan Miller, senior wealth advisor at MAI Capital Management, diversification is key. Avoid concentrating all your capital in a few stocks, no matter how tempting they may be. For example, the S&P 500’s recent surge was largely driven by a handful of tech giants, leading to potential risks of market volatility. Stocks like Microsoft, Nvidia, and Tesla have all shown price fluctuations, highlighting the importance of spreading your investments across different industries for a more stable portfolio.
Miller emphasizes the significance of rebalancing portfolios periodically to align with long-term investment goals. This ensures that you don’t become overly exposed to certain stocks and risk potential losses. By gifting shares of an equity position, you can effectively rebalance your portfolio while offering a valuable gift to your loved ones.
Gifting Stocks Lowers Taxes For You And Recipient
One of the major advantages of gifting stocks is the potential tax benefits for both the giver and the recipient. The Internal Revenue Service allows tax-free gifting of up to $18,000 worth of stocks per person annually. This exemption applies because you’re transferring ownership of the shares rather than selling them. While you won’t be taxed on the gift, the recipient will owe taxes on any profits made from the original position at the stock’s cost basis.
Miller points out an interesting tax loophole – recipients with lower taxable incomes may owe 0% in capital gains tax. This means that gifting stocks to family members in lower tax brackets can be a tax-efficient strategy. Additionally, donating stocks directly to charitable organizations can maximize the value of your gift while providing tax deductions for the donor.
Be Mindful Of Account Custody Laws When Gifting To Kids
If you’re considering gifting stocks to minors, it’s essential to understand the implications of custodial accounts. While this can be a great way to transfer wealth to children or grandchildren, Miller advises caution. Minors gain full access to custodial accounts upon reaching the age of majority, which could lead to irresponsible spending if they’re not financially savvy.
To avoid potential pitfalls, explore alternative options like 529 plans for education savings or Roth IRAs for long-term financial growth. These accounts provide a structured approach to managing wealth for minors and offer tax benefits that can enhance their financial future.
Chalk Out A Detailed Transfer Plan
When transferring stock ownership, having trading accounts with the same brokerage simplifies the process. However, if you and your recipients use different brokerages, the transfer can be more complex and time-consuming. Timing is crucial, especially when gifting stocks to charities, as transfers must be completed before the year-end deadline to qualify for tax deductions.
In conclusion, gifting stocks can be a thoughtful and financially beneficial gesture this holiday season. By following expert advice, selecting stocks wisely, and planning ahead, you can maximize the impact of your gift while optimizing tax advantages for yourself and your loved ones. So, why not consider the gift of wealth this holiday season?
