The 5 Best Financial Gifts for Children or Grandchildren

Have you started your holiday shopping yet? Instead of giving gifts that might end up collecting dust or breaking in a few months, many families are looking for meaningful ideas that offer real value.

This year, consider gifts that can teach kids and grandkids about money management and help set them up for a strong financial future. If you’re looking to make a lasting impact, here are my top five picks to help support their financial journey and set them on the path to financial independence.

1. Set Up a Roth IRA

The first gift that comes to mind is a Roth IRA. If your child or grandchild has earned income—whether it’s from a summer job, babysitting, or tutoring—they’re eligible to start one. A Roth IRA is a fantastic way for them to begin building tax-free savings for the future.

By opening a custodial Roth IRA, you’re helping them lay a strong financial foundation early on. The money contributed grows tax-deferred, meaning there’s potential for significant long-term growth. Plus, starting a Roth IRA at a young age encourages good savings habits and gives them a head start on their financial future.

To set one up, you’ll need a custodian to manage the account until the child is old enough to take over. Choosing someone who shares your investing philosophy is key, as they’ll help guide the account’s progress and provide support along the way.

This is truly a gift that keeps on giving—one that can have a lasting impact for years to come.

2. Contribute to a 529 Savings Plan

A 529 savings plan is another thoughtful gift that can help set your child or grandchild up for success by saving for future education costs—and it comes with some great tax benefits, too. Whether they’re preparing for college, grad school, or other qualified educational expenses, a 529 plan can make a big difference.

Here’s how it works: the money you contribute grows tax-deferred, and withdrawals for qualified expenses—like tuition, books, or housing—are usually tax-free.

Setting up a 529 plan is straightforward. Many states offer their own plans with a variety of investment options, so you can choose one that aligns with your goals. You can also make regular monthly contributions or opt for a one-time gift, giving you flexibility to contribute in a way that works for you.

Gifting a 529 plan helps relieve some of the financial burden of higher education, allowing your loved ones to focus on achieving their educational dreams. It’s a gift that provides real value and long-term impact.

3. Open and Contribute to a Custodial Investment Account

Introducing a child to the concept of long-term growth and the value of investing patience is truly a gift that keeps on giving. If a Roth IRA or 529 plan doesn’t feel like the right fit, another great option is to set up a taxable custodial account in their name and make regular contributions.

This type of account can teach kids about the market, the power of compound growth, and the importance of staying invested over time—especially if you invest in broad market indices like the S&P 500 or Nasdaq 100.

One of the benefits of custodial accounts is that contributions aren’t limited to just you—friends and family can contribute as well, and there are no annual contribution limits.

That said, there are a couple of tax considerations to keep in mind:

For 2024, the first $1,250 in earnings is generally tax-free at the federal level.
The next $1,250 is taxed at the child’s rate.
Any earnings over $2,500 are taxed at the parent’s rate.

It’s also worth noting that assets in custodial accounts count as the child’s for financial aid purposes, which could affect their eligibility down the line.

While custodial accounts come with a few things to keep in mind, they’re an excellent way to give the next generation an early start in understanding investing and building wealth for the future.

4. Educate Them About Inflation by Gifting I-Bonds

Gifting I-bonds from the U.S. government is a smart way to help a child invest for the future
while also teaching them about inflation. I-bonds offer a robust combination of interest: a fixed
rate and a variable rate that changes with the inflation rate. This means the interest can grow
over time, and the variable rate adjusts every six months. For the period ending October 31st,
the combined rate was 4.28%^[1], which is pretty solid!

You can start with as little as $25, and I-bonds are easy to buy online directly from the U.S.
Treasury. There’s a limit of $10,000 per year, but it’s a great way to introduce kids to the idea of
long-term investing. Just keep in mind that there are some rules about withdrawing the money
during the first five years.

While you’ll pay federal taxes on the interest earned, there are no state or local taxes. You can
also choose whether to pay those taxes annually or when you cash in the bond. The best part? If
the bond is used for qualified educational expenses, the interest is completely tax-free!

5. Buy Stock in a Kid-Friendly Company

A great financial gift for kids is buying them stock in a company they’re already excited about.
It’s a fun and hands-on way to introduce them to investing—especially if you buy stock in a
company like Disney or Mattel, something they can relate to. Owning a piece of a well-known
business helps them understand the basics of the stock market, how companies make money,
and even how dividends work.

Their interest in the investment will likely grow (or shrink) based on how the company’s stock is
performing, so it’s a chance to talk about what affects stock prices and why values go up and
down. Just a reminder, though—stock investing does come with risks, and values can fluctuate
over time.

By giving them shares in a company they care about, you’re sparking their curiosity about
business and finance. It also teaches them the value of patience and the importance of thinking
long-term as they watch their investment perform.

Work With a Financial Professional

Investing in a child’s future with thoughtful, financially-focused gifts can set them up for a
lifetime of advantages. When you introduce young family members to important concepts like
investing, compound interest, and saving, you’re not just giving a present—you’re equipping
them with essential tools to help them manage their finances wisely.

At Align Financial Solutions, we’re all about helping families build lasting legacies through
personalized guidance and long-term relationships. We work closely with our clients to make
smart financial choices that align with their family’s goals, helping to build confidence and
develop essential skills for the future.

If you’re thinking about financial gifts that go beyond just the holidays, let’s chat. Reach out
today, and we can help you create a plan that sets your loved ones up for a bright financial
future.

[1] https://www.treasurydirect.gov/news/2024/release-05-01-rates

Securities and advisory services offered through LPL Financial, A Registered Investment Advisor.

Member FINRA/SIPC.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. (19-LPL)

The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly. (102-LPL)

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Indexes are unmanaged and cannot be invested in directly. (112-LPL)

Series I bonds are guaranteed by the US government as to the timely payment of principal and interest and offer a fixed rate of return and fixed principal value. Minimum term of ownership applies. Early redemption penalties may apply.

Stock investing includes risks, including fluctuating prices and loss of principal. (132-LPL)

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and may not be invested into directly.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.