When planning gifts for children on your holiday list, you might want to think beyond the traditional retail offerings. Consider financial gifts that can bestow benefits for many years to come.
Some examples include the following:
*U.S. savings bonds. Savings bonds are used by many families to introduce children to the savings concept. I bonds are indexed for inflation and can provide some relatively attractive rates of return.
*IRAs (regular or Roth). For 2012, you can contribute the lower of $5,000 or the earned income of the child. An early financial start can produce amazing benefits from compounded interest accumulated over several decades.
*Fund a 529 education account. Anyone can contribute to a child’s Section 529 college savings plan, which accumulates savings for tuition and living expenses. There are no income restrictions on the donor, and few practical limits on the amount that can be saved. Your gift will grow tax-free in the plan.
*You could also make your gift to a Coverdell education savings account. These IRA-like accounts also grow tax-free, but there’s a $2,000 limit on total contributions from all sources. The amount of your gift may also be limited, depending on your income.
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Written by: Doug Rodrigues