Finance: Awesome Financial Gifts for Kids

Q: I would like to give my niece a meaningful gift this holiday, not just a check or a sweater. What are the best financial-related gifts?

A: Several gifts can help your niece get more of a head start with her finances than if you just sent her a check.

If she earned any income from a job, you can give her money to contribute to a Roth IRA – up to the amount she earned for the year, with a $5,500 maximum in 2018. She can withdraw the earnings tax-free in retirement and can tap the contributions anytime without taxes or penalties.

You or her parents will need to sign extra forms to open a custodial Roth IRA if she’s a minor. Fidelity and TD Ameritrade offer custodial Roth IRAs with no minimum and no maintenance fees. Charles Schwab has a $100 minimum and no maintenance fees.

You can contribute to a 529 plan, which she can use tax-free for college. Many states offer a state income-tax deduction for the gift (see www.savingforcollege.com for each state’s rules). Many 529s participate in the Ugift program (www.ugift529.com), which makes it easy for family and friends to contribute online.

Or you could give her some shares of stock. Online brokerage Stockpile offers gift cards on its site or at retailers such as Target and Staples. You can give from $1 to $2,000, which your niece can invest in her choice of more than 1,000 stocks and track through a kid-friendly app. See www.stockpile.com/gift-cards.

Q: How much are Social Security benefits going up in 2019?

A: Social Security benefits will increase by 2.8 percent in 2019, which is the largest cost-of-living adjustment since 2012. That boosts the average monthly Social Security benefit by about $39, to $1,461 in 2019. The maximum Social Security benefit for a worker retiring at full retirement age will increase from $2,788 to $2,861 in 2019.

More of workers’ wages will also be subject to the Social Security payroll tax, which will apply to the first $132,900 of earnings in 2019, up from $128,400.

Q: My house was damaged by Hurricane Florence, and I had to pay a 2 percent deductible, which was more than $7,000. Is that amount tax-deductible?

A: Probably, but the calculation is complicated, and the laws changed this year. In the past, unreimbursed casualty losses were deductible whether your house was damaged by a major disaster or by a calamity that damaged only your own home. But last year’s tax law changed the rules for 2018 through 2025. Now you can take the casualty loss deduction only if your home is in a federally declared disaster area.

To calculate the deductible loss, first subtract $100 from the unreimbursed loss. You can deduct the portion of that eligible loss that exceeds 10 percent of your adjusted gross income. Your eligible loss may be more than the $7,000 deductible if there were other damages that weren’t covered by insurance, such as flood damage.

Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.

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