Vail Daily column: Sending financial Valentines to loved ones
February 11, 2016
Americans spent nearly $19 billion in Valentine's Day gifts last year, according to the National Retail Federation. Much of this money went to gifts with short shelf lives, such as candy, flowers and restaurant meals (and about $700 million was spent on gifts for pets). There's certainly nothing wrong with giving chocolates or roses. But this year, think about going beyond the classic gifts. Instead, use Valentine's Day as an opportunity to determine how you can make gifts with long-lasting impact to your circle of loved ones.
Here are some suggestions:
• For your spouse or significant other: As long as your spouse or significant other has earned income, he or she may be able to contribute to a traditional or Roth IRA. So, consider giving a check to be used for that purpose. A traditional IRA can grow tax deferred, while contributions are usually tax-deductible. (Taxes are due upon withdrawal, and withdrawals prior to 59 1/2 may be subject to a 10 percent Internal Revenue Service penalty.) While Roth IRA contributions are not deductible, any earnings growth can be distributed tax free, provided the account owner doesn't take withdrawals until age 59½ and has had the account at least five years. For 2015 and 2016, the IRA contribution limit is $5,500, or $6,500 for those 50 or older.
• For your children: You don't have to be rich to give your children a gift worth $1 million — but you can help them on their way toward getting through school. College graduates earn about $1 million more in the course of their lifetimes than those without a degree, according to research from the Federal Reserve Bank of New York. Still, college isn't cheap: The average annual cost — tuition, fees, room and board — for a private four-year college is more than $42,000, according to the College Board, while the comparable figure for a public four-year school is about $19,000. Of course, if financial aid is available, then you could get some help.
Nonetheless, you may want to start putting away money for college. One popular college savings vehicle is a 529 plan. Your 529 plan contributions may be deductible from your state taxes, and any earnings growth can be withdrawn tax-free, provided it is used for qualified higher education expenses. (However, if you take withdrawals from your 529 plan, and you don't use the money for these higher education expenses, you may be subject to both income tax and a 10 percent penalty on the earnings.)
• For your parents: If you have elderly parents, then you may want to find out if they've got their retirement and estate plans in place. If they've already taken care of everything, then you may not need to get involved — but if they've left some "loose ends," your help could be a valuable gift. So, ask them if they have drawn up the necessary legal documents. Do they each have a will? Have they created a durable power of attorney, which allows them to name someone to make financial and health care decisions on their behalf if they become incapacitated? If it appears they have much work to do in these areas, then you may want to offer to arrange a consultation for them with a legal advisor and a financial professional.
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None of these ideas are traditional Valentine's Day gifts — but all of them can prove of great value to your loved ones.
This article was written by Edward Jones for use by your local Edward Jones financial adviser. Edward Jones and its associates and financial advisers do not provide tax or legal advice. Tina DeWitt, Charlie Wick, Kevin Brubeck, Dolly Schaub, Bret Hooper and Chris Murray are financial advisers with Edward Jones Investments. They can be reached in Edwards at 970-926-1728 and in Eagle at 970-328-4959 and 970-328-0361.