Family Gifting Strategies

While many popular gifting strategies involve charities, gifting to family members can be equally rewarding. Here are a few easy approaches that can reduce or avoid taxes, and are also effective wealth transfer techniques.

  1. Annual Exclusion Gift – In 2013, $14,000 can be gifted to any individual without any reporting or paperwork. There is also no reduction in the federal estate and gift exemption amount, currently $5,250,000 per person. You can still gift more than this to one person by filing IRS Form 709 – the Gift Tax Return. Amounts given over $14,000 begin to reduce the amount you can leave tax-free at death ($5,250,000), unless you split gifts with your spouse. In this case, you can together give $28,000 (in 2013) with no tax, but form 709 is required.
  2. Start a Roth IRA – If you are starting small with a teenage grandchild, this may be a good fit. For example, if your grandson earned $1,000 mowing lawns and would otherwise qualify, he could put $1,000 into a Roth IRA. Or if he saved half of what he made, you could gift a matching contribution of the other half to allow him to put the full $1,000 into the account. This could be a great way to encourage saving and investing at an early age.
  3. Pay College Tuition or Medical Bills Directly – These are the only two exceptions to the annual gifting limit. If you pay medical expenses or college tuition directly, the $14,000 limit does not apply.
  4. Gift Appreciated Assets to Lower Income Tax Brackets – Just beware of the ‘Kiddie Tax’ which is levied on unearned income (interest, dividends, and capital gains) earned by children under the age of 19 and college students under 24. The first $1,000 is offset by a $1,000 standard deduction, and the next $1,000 will be taxed at the child’s tax rate. All of the child’s unearned income in excess of $2,000 is taxed at the parent’s tax rate.
  5. State Income Tax Deduction for 529 Plan Contributions – Several states allow income tax deductions for these contributions, subject to certain limits. So you may be able to help yourself at the same time!

About the author

Michael Helveston, CFP®, CRPC®

Mike Helveston, CFP®, CRPC® is Director of Adviser Services at Rodgers & Associates. He manages the team of advisers and is responsible for maintaining the firm’s financial planning process. In addition, he provides comprehensive tax, estate and investment planning advice to guide our high-net-worth clients toward their financial goals. Mike joined Rodgers & Associates in 2007 after starting in the profession over 15 years ago with Vanguard.

Mike is a contributor to Forbes, has been quoted in the Wall Street Journal and has also appeared on television and radio discussing various financial planning issues.

Mike has served the community as a volunteer mortgage counselor with Tabor Community Services, a student financial literacy volunteer for Junior Achievement and as a mentor through Bridge of Hope. His hobbies include running, golfing with friends, listening to music and watching professional sports. He resides in Downingtown, PA with his wife and three children.

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