What is a Monetary Gift?
A monetary gift is a transfer of money or a financial instrument that has liquid value from one party to another, without receiving or expecting to receive anything in return.
Giving gifts is a way to show you care. Specifically, giving gifts of monetary value shows you care about the gift receiver’s future, especially when gifting money to children.
If you want to follow monetary gift etiquette, make sure to go the extra mile. Handing over cash bills can feel impersonal but adding a handwritten greeting card or video greeting can go a long way to turn a dull financial transfer into a fun, personal gift.
Giving financial gifts may have tax implications on the gift giver if the total amount of gifts given in a given calendar year to the same gift receiver is more than the annual IRS gift tax exclusion rate.
Adding a handwritten greeting card or video greeting can go a long way to turn a dull financial transfer into a fun, personal gift
Monetary gifts have the power to kickstart fantastic financial goals. With monetary gifts, young couples are able to afford a house down payment.
Teenagers can use monetary gifts to help them buy their first car (the car that will drive them to their first job!).
Babies get their first starter fund for college education.
Monetary Gift Examples & Alternatives
There are different ways to give gifts of monetary value beyond giving cash bills.
Each way has a different potential value and different gift experience to them.
1) Greatest Gift
Greatest Gift is the financial gifting platform for children’s long-term savings. It lets you invest in a child’s financial future in a fun and meaningful way.
Gift receivers get to choose how to use the gift funds and are encouraged to save for the long run.
Financial gifts with Greatest Gift can be redeemed at UTMA accounts, custodial accounts, 529 plans, high-yield savings accounts, or other bank accounts.
Assuming an average interest rate of 7%, a $100 gift can grow by as much as 3.5 times in 18 years, but the true power of the gift comes from building the right saving and investing habits early on.
2) Cash & Checks
The most straightforward way to give a monetary gift is to hand over cash or to write out a check.
However, cash & checks have their limitations. Checks have a high chance for errors and handing over cash bills can signal lack of effort.
The best practice calls to get a nice envelope and greeting card in order to dress up cash & checks as gifts.
While cash can be used for anything, you’ll typically find it sitting in the gift receiver’s wallet until the next time they fill up on gas.
Other options may be preferable if you want the gift to go towards a better goal.
3)P2P Payment App Gifts
Although a popular way to transfer money between people these days, sending cash on an app like Venmo is mostly transactional and may feel even more impersonal than giving cash.
It’s quick and easy, but there’s no additional value to it.
4) Savings Bonds as Gifts
Giving savings bonds as gifts used to be a popular way for uncles, aunts, and grandparents to invest in a child’s future, but not as much anymore.
The IRS stopped selling the paper version and made giving US savings bonds as gifts extremely inconvenient.
5) Gifting Stock
Giving stocks as gifts can have a great impact on the gift receiver, both financially and educationally. However, giving stocks to another person isn’t easy.
You’ll both need brokerage accounts, and you may need the gift receiver’s sensitive personal information.
6) 529 Plan Contribution
Contributions to 529 plans are monetary gifts towards a child’s higher education. Contributions made to a 529 accounts are considered as financial gifts and count towards the annual gift exclusion rate.
529 plans have a lot of potential upsides to them. Money in the account is usually invested and grows in a tax free way, as long as withdrawals are used to pay for qualified expenses.
7) UTMA Account Contribution
UTMA accounts are custodial investment accounts owned by a minor and managed by an adult until the child comes of age.
Contributions made to a UTMA account are considered as financial gifts and count towards the annual gift exclusion rate.
Money held in UTMA accounts can be used to purchase securities and investments and grow over the lifetime of a child.
Monetary Gift Limits
There is no limit on how much you can give as monetary gift. However, if you give over a certain amount or value in a given calendar year to the same recipient, you may have to report the gifts to the IRS on your yearly tax return.
This gift threshold is called the annual gift exclusion rate and is set every year by the IRS. In 2023, the threshold is set at $17,000.
There is no limit on how much you can give as monetary gift.
Other than the yearly threshold, the IRS also defines a lifetime amount that is allowed to be gifted without paying federal taxes.
Gifts that are given more than the yearly limit are counted towards the amount you are allowed to give in a lifetime without paying gift & estate taxes on them.
Taxes on Monetary Gifts
Are monetary gifts taxable?
Giving a monetary gift may have tax implications on the gift giver.
When the total value of gifts given by a gift giver to the same recipient in a calendar year passes the IRS annual exclusion rate, the gift giver may need to pay taxes on the given gifts.
The IRS has an annual exclusion rate that defines the threshold of when a gift (or total amount of gifts in that year) qualifies for tax purposes. In 2023 that annual exclusion rate is $17,000.
In other words, if you give to the same person gifts that total less than $17,000 in one year, you don't need to pay gift taxes.
Gifts beyond the annual exclusion rate need to be reported on IRS form 709 and may count towards theIRS lifetime tax exemption on gifts and estates.
In other words, if you give to the same person gifts that total less than $17,000 in one year, you don't need to pay gift taxes.
The IRS allows you to gift an amount of money and assets over your lifetime without paying federal gift or estate taxes. In 2023, that lifetime exclusion is $12.92 million.
Note though, that not all gifts incur taxes. Gifts to a spouse and direct payments for medical bills or tuition as gifts are exempt from gift taxes.
Who is responsible for paying taxes on gifts?
When it comes to gift giving, it is the gift giver that is responsible for paying gift taxes (if there are any). If the gift giver gives more than the annual exclusion rate to the same gift receiver in a calendar year, the gift giver needs to file form 709 with the tax returns and determine what the tax liability is.
How to calculate taxes on gifts
If you think you passed or are close to passing the annual exclusion rate, make sure to fill out form 709 (or have your accountant fill it out) when tax season comes and find out exactly how much you owe on your gifts.
Monetary Gifts FAQ
How much is a good monetary gift?
Different events and different closeness levels to the gift receiver both come in to play when it comes to determining what a good monetary gift amount is.
The closer you are and the more important the gifting occasion, the higher the gift amount should be.
How much money do you give for a wedding?
Anywhere between $75 and $250 is a good amount to give for a wedding. Generally, when giving cash as gifts you should give the same amount you would spend on a physical gift.
How much money do you give for a baby shower?
Typical baby shower gifts range between $25 to as high as $200 and more, depending on how close you are with the expecting parents.
Deciding how much to spend on a baby shower gift is the easy part.
Making sure the money feels like gift and goes towards the baby’s future is trickier.
How to say monetary gift preferred?
Asking for money instead of gifts can feel awkward, but there is a right way to go about it.
Instead of telling people that you prefer to receive cash as gifts, let them know what the money will be used for.
When gifting towards a financial goal, a $100 cash gift can turn into the gift of college education.
Share your financial goals with your friends and family before you have an event with Greatest Gift’s help and show them how they can invest in your financial future.
I'm an expert in personal finance and financial gifting, with a deep understanding of the concepts and practices surrounding monetary gifts. I've gained practical knowledge through extensive research, professional experience, and a passion for helping individuals make informed financial decisions. Now, let's delve into the key concepts covered in the provided article:
1. Monetary Gift Definition:
A monetary gift refers to the transfer of money or financial instruments with liquid value from one party to another without expecting anything in return. It is a gesture that demonstrates care and concern for the recipient's future.
2. Monetary Gift Etiquette:
To adhere to monetary gift etiquette, it's recommended to go beyond simply handing over cash. Adding a handwritten greeting card or a video greeting personalizes the gift, making it more meaningful and thoughtful.
3. Tax Implications of Monetary Gifts:
Monetary gifts can have tax implications for the giver. If the total amount of gifts given to the same recipient in a calendar year exceeds the annual IRS gift tax exclusion rate (set at $17,000 in 2023), the giver may be subject to gift taxes. Gifts beyond this threshold should be reported on IRS Form 709.
4. Monetary Gifts for Specific Purposes:
- Kickstarting Financial Goals: Monetary gifts can be instrumental in achieving significant financial goals, such as helping young couples afford a house down payment or assisting teenagers in buying their first car.
- Examples of Monetary Gift Alternatives:
- Greatest Gift: A financial gifting platform for children's long-term savings, offering various investment options.
- Cash & Checks: The straightforward method, but best practice involves presenting cash or checks in a nice envelope with a greeting card.
- P2P Payment App Gifts: Quick and easy, but may lack the personal touch.
- Savings Bonds: Less popular due to inconvenience in acquiring paper versions.
- Gifting Stock: Impacts the recipient financially and educationally, but requires brokerage accounts.
- 529 Plan Contribution: Monetary gifts for a child's higher education with potential tax advantages.
- UTMA Account Contribution: Custodial investment accounts for minors, also contributing to the annual gift exclusion rate.
5. Monetary Gift Limits:
While there is no specific limit on the amount for a monetary gift, if the total gifts exceed the annual gift exclusion rate in a calendar year, they should be reported. The IRS sets this threshold, which was $17,000 in 2023.
6. Taxes on Monetary Gifts:
- Annual Exclusion Rate: Gifts below the annual exclusion rate ($17,000 in 2023) don't incur gift taxes.
- Lifetime Exclusion: The IRS allows a lifetime exclusion from federal gift or estate taxes, set at $12.92 million in 2023.
- Responsible Party: The gift giver is responsible for paying gift taxes if applicable.
7. Determining Gift Amounts:
- The amount of a good monetary gift depends on the event and the relationship with the recipient.
- For weddings, a suggested range is between $75 and $250.
- Baby shower gifts typically range from $25 to over $200, depending on closeness with the parents.
8. Requesting Monetary Gifts:
Instead of explicitly asking for cash, it's suggested to communicate financial goals to potential gift givers. This can make the gift more meaningful and purposeful, such as contributing to a child's college fund.
In conclusion, understanding the nuances of monetary gifts, including tax implications and various gifting options, enables individuals to make informed decisions and create meaningful financial contributions to the lives of others.
