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CANDICE CHOI

Smart money gifts help children start saving or get someone's financial life in order

December 6, 2008
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It won't have the wow factor of an iPhone, but a Roth IRA or other money-minded gift may have more sizzle than you think this holiday season.

Rules to keep in mind when bestowing such presents - make sure they don't come off as judgmental or a homework assignment in disguise.

"Don't make it boring - or worse, a chore," said Sheryl Garrett, of the Garrett Planning Network of certified financial planners in Kansas.

Ideally, recipients will have expressed a desire to get their finances in order. That will let you reference their comments in a card.

  • A session with a planner. A session can cost several hundred dollars or more, so consider pooling resources with friends or family. Ask if the planner offers gift certificates. The Garrett network, for instance, has certificates starting at $25. The idea is to let people contribute toward a session without footing the entire bill.

  • Savings bonds or CDs. As old-fashioned as they seem, they're good starting points for teaching kids about investing. To make the gift more exciting, call ahead and ask if a bank representative can sit down to talk with the child about how the investment works. Some banks offer a behind-the-scenes tour. For teens or older recipients, a more unusual approach is setting up a savings account at SmartyPig.com. The site lets people save for a specific goal, whether it's a flat-screen TV or a trip. Goals can be made public on the site, as well as through widgets on Facebook, MySpace, or blogs, so individuals can enlist friends and relatives to contribute. Accounts are FDIC-insured and come with a 3.9 percent interest rate. Withdrawals aren't permitted, but accounts can be closed at any time without penalty. Gift certificates are available.

  • A brokerage account. Another way to help start kids is to set up a custodial brokerage account. Be sure to confer with the parents first. You'll need personal information, including the child's Social Security number. At Charles Schwab, there are no fees to open an account for as little as $100.

  • A Roth IRA. A good option for young people who are just entering the workforce. A Roth IRA may be preferable to a traditional IRA because withdrawals of contributions (not earnings) are generally tax- and penalty-free. However, traditional IRAs could benefit people in certain income brackets, since contributions may be tax-deductible. You'll need personal information for the beneficiary if you're opening a custodial account. Beneficiaries also need to earn a paycheck to be eligible.

  • A 529 plan. This college savings plan offers significant tax breaks. If you want to ensure your gift is put toward college, make the check out to the plan. Grandparents can open an account under their own names to maintain control.

    Candice Choi is an Associated Press personal finance writer.

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