Financial gifts can help dad for years to come
Father’s Day is almost here. Dad will probably like any gift you give him, of course, but this year, why not go beyond the ordinary? By presenting your father with an appropriate financial gift, you can bring him some benefits that can keep on giving.
For starters, how about a back-to-school gift for Dad? If you have children, you may already be familiar with 529 plans, which many parents use to help their children pay for college. But 529 plans have no age limits, so there’s nothing stopping you from reversing the usual formula and opening an account for your father. While 529 plans are commonly used to pay for four-year colleges, the money can also go toward most two-year community colleges and trade schools, so if Dad has a future interest in learning about anything from anthropology to auto repair, the 529 plan you’ve established can give him the gift of knowledge and enjoyment.
As the owner of a 529 plan, your earnings can accumulate tax free, provided they are used for qualified higher education expenses. (529 plan distributions not used for qualified expenses may be subject to federal and state income tax, and a 10 percent IRS penalty on the earnings.) Furthermore, if you invest in your own state’s 529 plan, you might be able to deduct the contributions from your taxes.
Here’s another suggestion: Help Dad reach a distant goal. For example, if you know your father will be retiring in, say, 10 years, you could give him some type of bond that matures just when he retires. During those 10 years, he will receive regular semiannual interest payments, and when the bond matures, he’ll get the original principal back. He can then use this money to help fulfill a long-held dream — perhaps one of traveling the world or even opening a small business. Whatever he decides to do with the money, it will make a nice retirement gift.
If you’re giving Dad a corporate bond, make sure it’s “investment grade,” which means it has received one of the highest ratings for safety from one of the major bond-rating agencies. Investment-grade bonds are generally the least likely to default. If your father is in one of the upper tax brackets, he might benefit from a municipal bond, whose interest payments are exempt from federal income taxes and possibly state and local taxes, too. (Some municipal bonds, however, are subject to the alternative minimum tax.)
Finally, you may want to help Dad plan his legacy. Although your father may be interested in what sort of legacy he will leave, he may not yet have taken any steps in this area — in particular, he might not have created a comprehensive estate plan.
You might consider giving your father some resources on estate planning, such as books or online articles. Better yet, though, consider setting him up with a consultation with a legal professional. It will take considerable time and effort to create the necessary documents, such as a will, a living trust, a durable power of attorney, and so on — and since the future is not ours to see, it’s best to take care of these tasks sooner, rather than later.
Father’s Day is just a blip on the calendar. But by giving Dad some valuable financial gifts, you can help brighten all his days.
This column was written by Edward Jones for use by your local Edward Jones financial adviser.