With the holidays upon us, my thoughts have turned to gift giving. My kids are already preparing their lists for Santa. While it can be tempting to fulfill their every request, have you ever noticed how quickly they become bored with the toys and games you buy them? How about giving them a gift with longer-term benefits?

Here are a couple of ideas:

  1. Fund a 529. You could allocate a portion of your gift budget for your kids to a 529 plan for college. You can even get grandparents and other close family members involved. Some 529s even offer a gift link that you can email out to family members to make their contribution easy. 529 contributions grow tax-deferred and distributions are not taxed if used to pay for qualified education expenses. Paying for college is a great way to give your child a gift they’ll remember long after they’ve broken the plastic toy from China you gave them when they were young.
  2. Fund a Roth IRA. If your kids are old enough to have a job (they must receive a w-2), then they are old enough to contribute to a Roth IRA. While it might be a hard sell to get a child to understand the importance of starting to save for retirement at an early age, you can certainly contribute to the Roth IRA on their behalf as long as it doesn’t exceed their w-2 income (up to the allowed limit of $5,500/year). You should only consider this strategy if you are already saving enough for your own retirement, but given the benefits of starting early, it can be a huge gift to your child to start funding a retirement account for them at a young age. A Roth IRA has the added benefit that it can then be used for college if needed, without paying taxes or penalties, as long as it’s used for qualified educational expenses. This rule applies to the contributions, not the growth on them.

If you’re tired of buying toys that end up in the landfill, then consider giving your children a gift this year that lasts a lifetime. Funding a 529 is a great option for younger kids and a Roth IRA can make sense for older kids who have jobs.