akemi kondo dalviBy AKEMI KONDO DALVI

Special occasions often call for gift giving: a graduation in May, a wedding in June, an anniversary in July, birthdays throughout the year and holidays at year end. Each event seems to sneak up on us…and our budgets! Retailers plan for holidays and seasonal sales, so why not do a little gift planning of your own?

Here are a few tips for your planning list:

• Save now — Gift buying will seem more manageable if you’ve been saving for it a little at a time. Whether you set up a formal gift account and contribute to it regularly or just stash away a few extra dollars here and there, it’s good to accumulate cash that is earmarked for gift-giving.

• Put a cap on spending — Work out a gift-giving budget for the year that includes a comfortable spending limit as well as a detailed list of individual gifts with spending caps for each. Then stick to it!

• Avoid credit traps — If you choose to charge your purchases, have a set plan for a payoff schedule. Department store cards typically charge a much higher interest rate.

• Take advantage of post-holiday sales — In Canada, the United Kingdom, and other Commonwealth countries they call it Boxing Day, but here it’s just the Day-After-Christmas Sale. For those truly die-hard shoppers, it can be the best shopping day of the year. Stores slash already reduced prices even more to make way for spring inventories.

Gift-giving is one of the easiest ways to overspend. But if you do a little planning before you shop, you’ll approach each occasion with your budget and generosity intact.

UGMA/UTMA — Gifts That Last a Lifetime

If you’d like to give a child money but want to do something more lasting than writing a check, consider setting up a custodial account under either the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act (UGMA/UTMA) through a bank or investment company.

Custodial accounts can help finance a child’s future and lessen the giver’s tax burden. Here are a few details you should be aware of.

• There are no income limits affecting eligibility to fund a custodial account.

• You can gift away up to $14,000[i] per child, each year ($28,000 for married couples) to as many children as you like without owing gift taxes. Beyond those amounts, gifts may be subject to federal gift taxes.

• Gifts made to UGMA/UTMA accounts are considered irrevocable. In other words, once the child reaches legal age (18 or 21, depending on the state), he or she gains full control over the assets.

• Since custodial accounts belong to the child, account assets may decrease the amount of financial aid a child can receive.

Beware the “Kiddie Tax”

Tax rules affecting UTMA/UGMA accounts bear careful consideration. Under the so-called “Kiddie Tax” rules, a child’s investment income over a certain level is taxed at his or her parents’ rate rather than the child’s lower rate (typically 5% for most children). Prior to 2006, the Kiddie Tax rule applied only to children younger than 14. However, the age limit has risen twice in the past few years.

Now the Kiddie Tax includes dependents up to the age of 19 and those up to the age of 24 who are full-time students. Any investment income earned in excess of $2,000[ii] will be taxed at the parents’ higher tax rate.

529 College Savings Plans

College Savings Plans, often referred to as 529 plans (named after Section 529 of the Internal Revenue Code) are a great gift for the kid who has everything. A 529 account is a tax-advantaged way of saving for a child’s future higher education expenses. The account owner is typically a parent or grandparent and the future college-bound child, the beneficiary. Anyone can contribute to a 529 once it’s created.

The principal grows tax deferred and future distributions are tax-free to the beneficiary if the funds are used towards qualified education expenses. Typical qualified expenses include tuition, fees, books, supplies, and equipment required for study at an accredited college, university, or vocational school in the United States and at some foreign universities.

Another benefit is that the account owner maintains control over the account, not the beneficiary. Therefore, if the original named beneficiary gets a full-ride scholarship and no longer needs the 529 funds, the beneficiary can be changed to another child who is college-bound or even to the owner for graduate education or interest courses at your local college.

Although the contributions are not tax-deductible for the donor’s federal tax filing, some states offer state tax deductions for contributions made by the donor (if your plan is managed by the state you reside in).

Your Certified Financial Planner® or CPA can help you set up strategies for gifting that work best for you and your family.


ii IRS Tax Topics 553

This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax situation is different. You should contact your tax professional to discuss your personal situation. The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, [email protected]), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.



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