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Giving stock as a gift can be a thoughtful and impactful gesture and a nice nod to someone’s financial future. Stocks have the potential to appreciate over time, providing the recipient with the opportunity for long-term financial growth — and it can encourage a lifelong interest in investing.
Sixty percent of Americans have never invested in stocks outside their 401(k)s, according to Finder’s latest Consumer Confidence Index. And, as mentioned, stocks offer investors some of the greatest potential for growth over the long term.
But as unique and precious as it is, it’s important to consider several factors to ensure the gift aligns with the recipient’s financial situation, preferences and your own intentions. Here’s how to give stock as a gift and what to consider in the process.
One of the quickest, easiest and most affordable ways to gift stock is online through a brokerage account. Both you and the person receiving the stock need an account when you give stock as a gift this way.
Gifting stocks to kids through a custodial account
Any adult can open a custodial account in a minor’s name, assuming they have all the required information to open the account. Grandparents, family members and even friends can open a custodial account for a child under 18 years of age.
With an account in your name and a custodial account for the minor, you can transfer over existing shares of stock, cash, exchange-traded funds (ETFs) and other securities or buy securities directly within the custodial account. You may choose to deposit cash as a gift and then select the stocks directly in the minor’s account.
As the custodian, you control the account until the minor becomes an adult. Once the minor turns 18 — or 21, depending on the state — they take full control of the account and its assets. Even before the minor becomes an adult, gifts made to a custodial account are irrevocable.
Here are some examples of kid-friendly brokers that offer custodial accounts:
Acorns Early. A UTMA/UGMA account built with Acorns‘ “Aggressive” ETF portfolio, with access to education and financial literacy content and automatic recurring contributions.
Schwab One Custodial Account. A brokerage account Charles Schwab offers that lets you buy and sell stocks, mutual funds, ETFs and other securities as a financial gift to a minor.
Stockpile. An investment 101 in stock trading, the Stockpile app lets kids invest in stocks, ETFs and crypto — with parent approval.
Our top picks for brokerage accounts for gifting stocks
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Gifting stocks to kids through a custodial Roth IRA
Similar to a custodial brokerage account, you can open a custodial Roth IRA in the minor’s name, gift stocks and let the account grow tax-free until they reach retirement. Like anyone else, the child needs earned income to open an IRA. But income can be from anything as simple as mowing lawns to babysitting.
Gifting stock through a custodial IRA has unique benefits, including tax advantages and long-term growth potential since the account is designed for retirement.
Gifting stock to family or friends
Some brokers let you transfer stocks and other securities to anyone’s account, though they may require that both you and the recipient have an account with that broker. For instance, Charles Schwab will typically let you transfer stock to anyone’s brokerage account by filling out and submitting a Letter of Authorization (LOA). Transfers to another person’s brokerage account can take a few days.
If you don’t see an option online to make this type of transfer, contact the broker directly to see if it’s available.
2. Buy the stock you want to gift if you don’t already own it
Here’s the fun part — choosing the companies to buy for your recipient. Which stock should you buy? While you may consider choosing a company your loved one likes or products they often use, also consider stocks poised for the greatest growth and return potential.
Potential factors to guide your stock-picking decision:
Dividends. Many companies that are household names — often known as blue chip companies — like Coca-Cola, General Mills and Procter & Gamble tend to be relatively safe options, as they offer price stability, strong financial health and established track records. Plus, most pay dividends, which can help mitigate losses from a fall in stock prices and help compound their money faster over time. Be aware that a child’s unearned income from dividend stocks that totals more than $2,300 may be subject to a specific tax.
Exchange-traded funds. If you’re unsure which stock to pick or want to gift exposure to multiple stocks at once, consider an ETF. These funds are a collection of multiple stocks and are usually less volatile.
Growth stocks. These are stocks of companies expected to grow at a faster rate than the overall market. Although growth stocks are riskier, picking the right one could offer bigger profit in the long run compared to a safe blue chip stock. Examples of growth stocks include Amazon.com (AMZN), Apple (AAPL) and Netflix (NFLX).
Favorite company. New and young investors might get hooked on investments with a stock from a familiar name.
What are the costs of buying stock?
Stocks range in value from pennies to over $540,000 for one share of Berkshire Hathaway Class A stock. Luckily, many brokers offer fractional shares trading, which lets you invest with a specific dollar amount instead of having to buy in at the stock’s current market price. With fractional shares, you can often invest with as little as $1. As for fees, many brokers now offer commission-free trading. If you plan to transfer stock to an outside account, you may incur a transfer fee. The sending broker dictates this fee.
3. Transfer the stock
The easiest transfer happens when the giver and receiver have accounts at the same brokerage firm. For a custodial account, a simple online process will transfer the stock in seconds. To transfer stock to someone other than the custodian whose account you manage, the process may be a little more complicated. It may require additional paperwork, like that LOA we mentioned earlier. You’ll need the recipient’s name, account number and contact information.
If you purchased the stock directly from the company or it’s an older, paper stock — bought before online stock trading technology — contact the company’s stock transfer agent to perform the change of ownership.
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What should I consider when gifting a stock?
The biggest consideration is any potential taxes when you give a stock as a gift. You and the recipient could be on the hook for a gift tax or capital gains tax.
Gift tax
As of 2023, the IRS charges a gift tax for any gift over $17,000.
If the value of the stock is $17,000 or less, the gift does not have to be reported.
If the value of the stock is more than $17,000, the gift has to be reported, but no gift tax will be due until the lifetime gift exemption limit is reached. For 2023, it’s $12.92 million.
If the stock is gifted upon the giver’s death, the cost basis changes to its value on the date it was inherited rather than what you paid for it.
Capital gains tax
Capital gains tax is the annual tax on any profits you make from the stock. The amount is determined by your tax bracket and the profit you make if you sell the investment. Here are some considerations involving capital gains taxes when gifting stocks:
If the receiver is in a lower tax bracket than you and you transfer the stock, they’ll pay less capital gains tax than you would if they sell it.
If the giver’s tax bracket is lower, you may consider selling the stock and paying less capital gains tax. Then, gift up to $17,000 in cash and avoid a gift tax.
If the receiver is a nonprofit organization, a stock transfer or donation will result in neither party paying capital gains tax.
If the stock is worth less than you paid for it, you may choose to sell the stock, record a capital loss against other income and gift up to $17,000 in cash per recipient without paying a gift tax.
Other ways to gift stocks
Opening a custodial account in a child’s name or transferring stock to another’s brokerage account is one of the best ways to gift stocks if long-term investing is the goal, but it’s not the only way to gift stock.
The site Giveashare offers an easy way to buy one share of stock as a gift. The recipient gets a framed stock certificate registered in their name, with all the benefits of being a company shareholder: annual reports, declared dividends and voting rights.
Mind you, this option is meant for those who want to emphasize the gift aspect of the stock, as the cost is well above the per-share price of any given stock. Giveashare’s prices include the stock’s market price plus added fees. For instance, one share of Tesla (TSLA) stock through the site costs $329 as of November 29, 2023, a nearly 35% premium over Tesla’s closing price of $244.14.
Bottom line
Stocks can be an exciting, valuable gift to those you love. They’re thoughtful because they require a bit more work upfront than a typical gift — but the value can often last longer.
Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.
Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.
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