Pages

Wednesday, November 25, 2015

It's Almost Christmas Again - It's Time To Start Giving Smarter

I've been a last minute Christmas shopper for a long time.

My wife is fond of pointing out that there's hardly anything left by the time I get around to hitting the stores.  My response to that criticism (or that loving observation from her point of view) always highlights the idea that having fewer items to choose from is a good thing because it simplifies the selection process.

But even I have to admit that some of the things I've picked out over the years have been pure filler, selected solely to satisfy the requirement of demonstrating that I was thinking of the intended recipients (my kids mainly).

Now having a sobering number of Christmas shopping seasons as an adult under my belt, and having been particularly struck by both the quote of the day below and the decaying pile of gifts from Christmas past that my wife showed me yesterday, I am planning a different approach this year.


.............................................................................................................................................................
"There are three principal means of acquiring knowledge... observation of nature, reflection, and experimentation. Observation collects facts; reflection combines them; experimentation verifies the result of that combination." - Denis Diderot
.............................................................................................................................................................



What if I could give something that wouldn't ever end up collecting dust until it was eventually tossed into a pile to be carried away to a dump?  Or, to put the question into the context of the quote above and frame it scientifically:

I've observed that I have wasted a lot of money over the years on Christmas gifts that eventually find their way to the landfill and now that I think about that, it's kind of dumb.  This year I'm going to try something different and I think my kids will hold on to these gifts for years to come.

My experimental idea isn't a new one at all to the world at large, but it will be new to me and it may be new to many people reading this post.  This year, my kids will receive their first shares of stock.

There are lots of considerations to be made here and I won't get into all of them in this post, which will be the first in a series on this topic.

The one issue that I'll cover today is the one dealing with the receiving mechanism.  That is, where does the stock go that I intend to give away?

In the old days, if I wanted to give someone a share of stock, I would have given them a physical certificate (share).  But today, stocks largely aren't represented by physical pieces of paper. Accordingly, giving someone a share of stock is done by creating a book entry with the stock company's transfer agent whereby the individual is recorded as the owner of record for that share. That transaction is recorded and tracked in an electronic book.  As such, anyone wishing to acquire stock today must have a brokerage account.  This includes minors, which brings up the additional issue of just which kind of account is most appropriate.

The following from fool.com serves as a pretty good synopsis on that topic:

....................
"Want to open a brokerage account for your bundle of joy (or precocious toddler, or sullen preteen)? The good news is, you can. The even better news is, you'll have a few more choices on what type of account you're going to open for your child than you would if you were opening one for yourself.
If your child has no earned income, then put that kid to work! Just kidding. If your child doesn't get a paycheck, then you can choose between two types of accounts where there are no maximum contribution limits. The first is a guardian account, in which you own the money. It's yours. You can withdraw it for any reason you want, and you are the one who is liable for the taxes on the earnings. You've got total control, and the price for this is that you pay taxes at your own tax rate. Practically speaking, then, this type of account is basically a way for you to informally earmark funds for your child in an account in your name.
The other type of account is a custodial account, where you don't own the money -- your child does. As long as your child is a child, you still control the account, but any withdrawals (or dividends, for that matter) are taxed at your child's rate. This is, of course, generally lower than your own. In other words, you've given up some long-term control (as well as ownership), but it's usually a better deal from a tax standpoint. There are two kinds of custodial accounts: the Uniform Gift to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA).
IRA accounts are another alternative for some kids. In order to have a regular IRA or a Roth IRA, the owner of the account must have earned income. That means that you cannot open one of these for your child until she is actually earning income. If your little kaboodle has begun child modeling at the age of four, or if you've decided to submit her for some friendly (and lucrative) medical experiments (shame on you!), then she qualifies. She can have an IRA for her earned income, up to annual limits of $4,000 per year in 2007 and $5,000 per year thereafter."
............................
Got it?  Good, because we're going to take the theoretical information above and work our way through two real life examples using me and another adult subject over the next few weeks.  
Only 33 shopping days left, but thankfully there will be no lines and no waiting this year!

KM

No comments:

Post a Comment