Year End Gift Giving Ideas           

Are you struggling to find the perfect gift for your loved ones? Are you having trouble buying something for the person who has everything? Do your loved ones need another pair of socks, matching pajamas, or decorative hand towels? It can be challenging to buy gifts for others, so here are a few last-minute ideas.

Cash. You can give away $16,000 per person without impacting your estate and gift tax exclusion, and it is not limited to family members. If you’re inclined, you can gift $16,000 to friends, neighbors, co-workers, and strangers.

Appreciated Securities. If you still own an appreciated security or two, consider donating it to your favorite charity. The charity receives your stock, and you receive a tax deduction. More importantly, you won’t pay a capital gains tax when you donate your shares, nor does the charity.

Donor Advised Fund (DAF). If you’re unsure where to donate your dollars, consider establishing a donor-advised fund and giving your money away later. You’ll receive a tax deduction when you contribute money to your fund, but you don’t have to distribute the funds immediately. For example, if you contribute $100,000 to a DAF today, you can give away smaller amounts over the coming years to multiple charities. Here is a link to Schwab’s Charitable Fund: https://www.schwabcharitable.org/donor-advised-funds

Qualified Charitable Distribution (QCD). If you’re 70 ½ or older, you can distribute up to $100,000 from your IRA to charitable organizations. In addition to supporting a nonprofit, the distribution fulfills your annual required minimum distribution (RMD). You won’t receive a tax deduction for your gift and won’t pay taxes on the distribution. It’s a win-win.

Charitable Remainder Trust (CRT). A CRT is similar to a donor-advised fund, except you’ll receive income from your gift and the charity receives your remaining assets at your death. For example, if you donate $1 million to a CRT, you may receive annual income in the range of $50,000 to $80,000, and when you pass, the remaining assets are sent to the organization you selected.

529 Education Plan. The gift of education is priceless. If you have grandchildren or great-grandchildren, consider establishing a 529 education plan. The money grows tax-free if you use the funds for education expenses. A 529 plan can pay for tuition at multiple levels, including K through 12, college, trade, graduate, law, or med school.

Fruitcake. It’s an excellent gift, and it will never expire!

It’s the gift-giving season. If you have ample resources, consider helping those in need or supporting the next generation. Your gift will spread joy and cheer for years to come.

Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver. ~ 2 Corinthians 9:7

November 21, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Lost and Found.

Rummaging through an old file I found a U.S Treasury EE Savings Bond.   The $50 bond was a gift to my wife from her mother in 1987.   My wife redeemed the bond on Tuesday and received $103.68.   The average annual return on her bond was 2.4%.  Inflation averaged 2.6% over this same period so my wife lost .2% per year on an inflation adjusted basis.  However, we’re grateful for the gift and the found money.

The Series EE/E bonds can only be purchased online from TreasuryDirect® at a current rate of .10%.  In addition to the EE/E bonds you can also purchase I bonds, H bonds, bills, notes, bonds and tips.  If you want guarantees, then look no further than investments issued by the U.S. Government.

As we race towards the holiday season you may want to give financial gifts to your family members.  A Series EE/E bond sounds like a good gift idea but are there better alternatives?  Here are few ideas:

  • Stock Mutual Fund. The stock market has averaged 10.2% since 1987 despite drops in 1987, 1990, 2000, 2001, 2002 and 2008.  A $10,000 investment in the Vanguard S&P 500 Index Fund in 1987 is now worth $168,000.[1]   If my wife’s $50 gift had been invested in this fund, it would be worth $980 today.
  • Bond Mutual Fund.  Long-term government bonds averaged 7.9% from 1987.  A $10,000 investment in the Vanguard Total Bond Fund is now worth $59,600.[2]
  • Individual Stocks. Buying stocks in companies your family uses could be a great way to grow wealth and learn about the stock market.  A quick trip around your home could identify hundreds of companies from Apple to Zillow.  Of course, picking the right stock will help.  An investment in Apple, Facebook or Netflix has done well, not so with Blockbuster or Toys ‘R Us.
  • Gold Coins. Gold coins issued by the United States Mint make great stocking stuffers.   Some of the more popular coins are the American Eagle, Walking Liberty, American Buffalo, and the First Ladies of the United States.   President Nixon ended the gold standard in 1971 when gold was priced at $35 per ounce and it’s currently trading for $1,295 per ounce.
  • Cash. Cash is a common gift to give a family member but it’s also the worst especially if you want them to save their money.   Cash can burn a hole in a pocket and most people will probably spend it and not save it.
  • Bitcoin. The investment of the year has been Bitcoin.  It’s currently trading for more than $8,000.  To buy Bitcoin you’ll need to open a Bitcoin Wallet using money from your bank account.  The cryptocurrency can be used just like cash for those outlets who accept Bitcoin.

Stocks are the ultimate gift for the long-term.  The historical performance from stocks has rewarded many shareholders.  In addition to the long-term trend of stocks, several companies pay dividends, so you can have your cake and eat it too!

For it is by grace you have been saved, through faith—and this is not from yourselves, it is the gift of God—  not by works, so that no one can boast.  For we are God’s handiwork, created in Christ Jesus to do good works, which God prepared in advance for us to do. ~ Ephesians 2:8-10.

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

November 23, 2017

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog.

 

 

 

 

[1] Morningstar Office Hypothetical Tool.

[2] Ibid.

Ready for a New Retirement?

Do you love new things?  Do you like driving a new car off the dealer’s lot?  How about getting a new pair of shoes?   We like getting new gifts but how about a new retirement?  Are we ready for a new retirement?

Corporations continue to scale back on pensions and benefits.  In 2015, 99 companies in the Fortune 500 offered a pension plan down from 292 in 1998, a drop of 66%.[1]  Only 9% of the Fortune 100 offer full healthcare benefits for their employees a drop from 34% in 2001.[2]

My wife’s grandfather worked his entire career for a large oil company in Texas.  He retired with a pension allowing him to receive a lifetime income stream for him and his lovely bride.   The payments from his former employer would continue for as long as one of them was living.  In addition, they didn’t have any out of pocket expenses for health and medical benefits, including drug prescriptions, as these items were covered by the company.   His pension, coupled with his Social Security payments, allowed him to enjoy a substantial retirement income.

Today, workers will have 10 to 15 jobs over their working career with an average of 12.[3]  A college graduate who retires at age 65 may switch jobs every three to four years.  By switching jobs often, a worker won’t accrue much in the way of company retirement benefits.  If you join a company with a 401(k), you may have to wait a year to join and if you leave before year end you might forfeit an employer contribution to your retirement plan.   By repeating this process over time, a lot of money will be left on the table.

Living longer is also causing heartache for the retiree.  A long, happy retirement can be enjoyable especially if you have money but longevity risk is making this a challenge for some.  According to the Motley Fool, Social Security will cover about 40% of your retirement income and the average monthly benefit will pay $1,350.[4]  This means you’re responsible for the other 60% of the financial pie.  According to the Social Security life expectancy tables an individual aged 65 today will live another nineteen years to age 84.  Will your assets generate income for nineteen years?

What does this mean for today’s worker?  We have entered a brave new world for retirement.  The responsibility for retirement is now on your shoulders and you must bear the weight of making your money last a lifetime.   However, you’re not alone.  With the right help, you can achieve your goals.

To start on your new journey, you’ll need a plan.  A financial and retirement plan will give you a financial target and this will be your guiding light as you journey through your working career.   Your financial plan will outline the amount of money you’ll need to save to achieve your goal.  To achieve your goal, you’ll need to commit to it as well.  I met with a friend recently who was bemoaning the fact he didn’t have enough money saved for retirement.  We talked about a few ideas but he wasn’t willing to commit – yet.   He likes to eat out often and his Facebook page shows him on elaborate treks with his family.  At some point, he’ll need to bear down and get serious about his financial future.

In addition to your new plan, you must save money.  Contributing to your company retirement plans, IRAs and investment accounts is paramount.   Saving money today will pay dividends tomorrow.  A worker who starts saving a $1,000 a month at age 25 will have $6.3 million at age 65.  Her nest egg will be worth $759,000 If she waits until age 45 to start saving money, a drop of 87%![5]   Automate your savings to help accumulate assets by establishing a draft between your bank to your investment accounts.

You can control your spending and saving.   The less you spend and the more you save will be a winning formula for your new retirement so start today and put your plan into action!  I know you can do it!

All hard work brings a profit, but mere talk leads only to poverty. ~ Proverbs 14:23

Bill Parrott is the President and CEO of Parrott Wealth Management.   For more information on planning and investment management, please visit www.parrottwealth.com.

July 13, 2017

 

 

 

[1] https://www.businessinsurance.com/article/20160222/NEWS03/160229986, by Jerry Geisel, 2/22/2016.

[2] http://fortune.com/2016/03/30/employer-paid-health-insurance-is-dying-off/, by Lauren Lorenzetti, 3/30/2016.

[3] https://www.thebalance.com/how-often-do-people-change-jobs-2060467, by Alison Doyle, May 1, 2017.

[4] https://www.fool.com/retirement/2016/10/23/can-you-live-on-social-security-alone.aspx, by Chuck Saletta, 10/23/2016.

[5] FV calculation with assets growing at 10% before taxes and fees.