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How to give stock as a gift
Find an investment your loved one will appreciate.
Giving a stock as a gift can end up being a nice nod to the future. Stocks can encourage a lifelong interest in investing, and the value can increase over time — and help to create an extra source of income through dividends. But consider the tax implications, and children younger than 18 need a custodian account.
Step 1. Select a brokerage account
Both you and the person receiving the stock need a brokerage account when you give a stock as a gift. The easiest and cheapest way to do this is through an online stock trading platform, examples of which are Robinhood, Betterment or Ally Invest. Using the same brokerage account makes the transfer smooth, and can sometimes save you in transfer fees.
When deciding on a brokerage account, consider:
- Transfer options. Find out the process for transferring stocks, and the fee — you’ll typically pay $75.
- Minor accounts. If your recipient is under 18, find out if they offer accounts for children.
Step 2. Buy the stock
Here’s the fun part — choosing the companies to buy for your recipient. Either choose a company your loved one likes or uses often, or choose based on your knowledge of growths and returns.
Here are a few types of shares to consider:
- Dividend stocks. Household names — known as blue-chip companies — like AT&T, General Mills, IBM and Verizon, tend to be safe options and they pay dividends. The shortfall is they’re less likely to see significant capital growth in the long run.
- Exchange-traded funds. If you’re looking for a more diversified long-term investment, ETFs are a collection of multiple stocks and are usually less volatile.
- Renewables. Risk is based on government policy, but renewable energy stock has seen some growth and could be a strong investment in the long run.
- Growth stocks. These are new or obscure stocks with the potential to grow. Although growth stocks are riskier, picking the right one could offer bigger profit in the long run compared to a safe blue-chip stock.
- Global stocks. Typical brokerages won’t let you buy foreign stocks, but some of the biggest multinational companies are listed on US stock exchanges and available in popular trading accounts. Or buy units in a global-themed ETF, whether you’re interested in developed countries, emerging markets or specific continents like Europe or Asia.
- Favorite company. New and young investors might get hooked on investments with a stock from a familiar name.
What’s the costs of buying stock?
Most stocks cost between $200 and $1,000. And as for fees, many brokerage accounts in the US now offer commission-free trading and free account set up. The biggest cost is the transfer fee, so find out what it is and incorporate it into the overall cost of the gift.
Step 3. Transfer the stock
The process to transfer stocks varies depending on the account the stock is held in and the recipient’s account.
The easiest transfer happens when the giver and receiver have accounts at the same brokerage firm. The giver fills out a form that includes the recipient’s account number and personal information. The transfer usually takes a few minutes.
Transfers to a different brokerage account can take a few days, similar to a bank transfer.
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 taxes when you decide to give a stock as a gift. You and the recipient could be on the hook for a gift or capital gains tax.
As of May 2020, the IRS charges a gift tax for any gift over $15,000.
- If the value of the stock is $15,000 or less, the gift does not have to be reported.
- If the value of the stock is more than $15,000, the gift has to be reported, but no gift tax will be due until the lifetime gift exemption limit is reached. As of May 2020, it’s $11.58 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
This 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 the receiver is in a lower tax bracket than you, transfer the stock and they’ll pay less capital gains tax than you would when they sell it.
- If the giver’s tax bracket is lower, sell the stock and pay less capital gains tax. Then gift up to $15,000 in cash and avoid a gift tax.
- If the receiver is a nonprofit organization, transfer the stock and neither party would pay capital gains tax.
- If the stock is worth less than you paid for it, sell the stock, record a capital loss against other income, and gift up to $15,000 in cash per recipient without paying a gift tax.
Buying stock for children
Stocks can be thoughtful gifts for kids to get them interested in finance and could give them a leg up into adulthood.
Children under the age of 18 can’t legally buy or wholly own stock. However, a parent or guardian can open a custodial account registered under an adult’s name until they’re old enough to have it on their own. When the minor turns 18, you can transfer ownership solely to them.
Or you can open a 529 college savings plan on their behalf and contribute to it as often as you’d like. Others can also make contributions.
Microinvesting for kids
Another option for kids is to open an account for them through a microinvestment or robo-advisor platform. It’s a fairly new idea, but some investment apps now have specific accounts for children that parents can set up.
Robo-advisors invest your money into a curated portfolio of stocks or other products based on your profile or preferences. Because it’s an online service, you pay a much lower fee than you normally would through a regular investment adviser or stock broker.
The investments held in the account are not wholly owned by the child, but held by the adult until they turn 18. The advantage here is that they’re easy to set up, they’re often cheaper than adult accounts — or free — and the app’s charts and interactive features make it easier to visualize investing.
Popular investment apps offering children’s accounts:
- Stockpile: An investment 101 in stock trading, this app lets you invest in fractional shares of select stocks for $0.99 per trade.
- Stash: Help beginner investors get in the market and invest in fractional shares of select stocks for a monthly flat fee.
Whether they’re already valuable or have potential for the future, stocks can be an exciting gift to those you love. They’re thoughtful because they require a bit more work up front than a typical gift — and sometimes can last longer.
Once you’ve considered who your grand gesture will go to, compare trading accounts or other services that best match your intentions.
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