Think About Sending Financial “Valentines” to Loved Ones

Americans spent nearly $19 billion in Valentine’s Day gifts last year, according to the National Retail Federation. Much of this money went for 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? may be subject to a 10% IRS 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 59? 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 – you just have to help them through school. College graduates earn about $1 million more over 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, 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 Your 529 plan contributions may be deductible from your state taxes, and any earnings growth can be withdrawn tax-free, provided it is used for qualified higher education expenses.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% penalty on the earnings.)