5 Financial Gift Ideas for Graduates
Instead of gifting the hottest tech gadget that might make you everyone’s favorite parent, grandparent, or family friend, consider these financial gift ideas for the graduate in your life.
#1 Individual Retirement Accounts (Roth IRAs)
Give the gift of future financial stability with a Roth IRA. While this financial gift idea for graduates might not be as cool as a new computer or cash, it’s one your kid or grandkid will thank you for later in life.
This is an ideal gift for a high school or college graduate who has a part-time job.
However, there are specific rules to open and contribute to a Roth IRA to consider before opening one:
- The individual must be working and bring home earned income.
- You can contribute the amount of their earned income, up to the $6,000 contribution limit.
- No money can be withdrawn until the individual is 59½ years old, without penalty.
Opening up a Roth IRA that friends and family can contribute to may get an eye-roll from your graduate, but more than likely, they will thank you 40-plus years from now.
Before opening a Roth IRA for a graduate, make sure they don’t already have one set up. If they don’t, we recommend seeking third-party advice beforehand.
[Related Read: 10 Financial Lessons for Young Adults Before They Leave the Nest]
#2 Savings Bonds
While they don’t offer huge returns, savings bonds do appreciate over time and are a great financial gift idea for graduates in middle school.
Savings bonds are exempt from state income tax and, if used to pay for college, can be exempt from federal income taxes.
Series EE or Series I bonds are available for purchase. While both accrue interest monthly and compound interest semiannually, the only difference is the interest rates.
You can purchase and print a gift certificate online from the US Department of Treasury.
Gifting stocks can be risky because there is no guarantee the company will be around long enough to see monetary gain.
But it provides you an opportunity to teach your recent grad the value of investing and how to manage their investments. Take time to explain what you bought and why you bought it, as well as educating your graduate on how the market works.
There are online brokerage firms that allow for gifting stocks, or you can transfer stocks you already own.
[Related Read: 12 Ways to Teach Kids about Investing]
Cash is a welcomed financial gift for graduates if it’s given for a specific purpose – otherwise, they might spend it on clothes, technology, or blow it with their friends.
If you give cash, make sure it’s designated to help pay for a move to a new city, to buy sports equipment or a new car, or help pay for college expenses.
For college grads, gift cash to help them pay down on their student loans, to set up an emergency fund, or fund their Roth IRA.
Another thing you can do if you gift cash is to use it as a teaching moment, especially for middle school or high school grads. Challenge them to take the cash gift and turn it into more money, and then report back the results.
#5 Saving for College
This last financial gift idea for graduates is ideal for kids or grandkids graduating elementary or middle school.
A 529 plan is a tax-advantaged investment that’s used to save for college, graduate school, and most recently K-12 tuition.
Once you open a 529, you contribute money after you’ve paid taxes on it, and then it grows tax-free. As long as you use the money for qualified education expenses, you won’t have to pay additional taxes on the money saved.
There are two types of 529 plans:
- 529 Savings Plans: These state-sponsored investment plans work a lot like 401(k)s and IRAs. These are state-sponsored, and your contributions are invested in investment products or mutual funds. The person who sets up the account is the owner and your child, niece, nephew, or grandchild is the beneficiary. The state works with an asset management company, and you as the owner deal with the company, not the state.
- 529 Prepaid Tuition Plans: These plans are managed by higher education institutions and states. They allow you to lock in today’s tuition rate and pay for college tuition at any of the state’s eligible schools. If the student decides to attend a private college or school out of state, an equal amount of money is distributed.
529 plans are typically state-sponsored and differ in requirements and benefits, so it’s important to speak with a third-party expert about your options.