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It’s graduation time and, if you’re like me, a surprising number of your nieces and nephews — by family or by friends — are receiving their high school and college diplomas. Graduation announcements are popping up like cicadas. So what’s the right gift for those budding scholars that can help get them off on the right foot, both scholastically and financially?
Well, that depends on the person and your relationship. Frankly, a graduation announcement from my second cousin, twice removed, whom I haven’t seen in 20 years, merits nothing more than best wishes. But for those closer relatives or children of good friends, whom you actually like, here’s a list of some gifts to celebrate the milestone and help the new graduate for years to come.
Make sure, however, that you give the gift discreetly. If a college finds out about the money — either because you paid the tuition bill directly or deposited the money in the student’s personal account — it will reduce his or her financial aid package by about the same amount.
Ain’t life grand.
To avoid this penalty, hold onto the money until the bill comes due, let junior’s parents do the paying and then compensate them. The Internal Revenue Service allows gifts of up to $11,000 per person per year without gift-tax implications for either the giver or recipient.
Some schools even make wired phones in dorm rooms optional because most students prefer cells. Just be sure to choose a plan with free night and weekend minutes, and insist that the deal includes a weekly or monthly call to the giver.
But as we all know, these young kids will someday be nearing retirement, and when that time comes, they will remember you with deep gratitude. If you put $3,000 in a Roth IRA when a person is 18 and the money earns 8 percent, it will grow to more than $110,000. Think how much you would appreciate having that money — which is tax-free — sitting in an account in your name.
Mark Helm is a personal finance writer and financial planner. He can be reached at HelmFinancial@aol.com.
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