Your 2023 guide to holiday giving

As the holidays approach, many of us are eager to make the season bright by giving to loved ones and those in need. Here are some financially smart strategies to help you support the people and causes you value most.

Giving gifts to family members remains a cherished part of the holiday routine, and the chance to reconnect may have you considering how to best give to your family. These three questions can help:

• Do you want to give family members a financial gift? If so, remember that you can give up to $17,000 per individual this year without having to file a gift tax return ($34,000 if married). Just remember that gifts exceeding $17,000 per individual count against your lifetime gift and estate tax exemption of $12.92 million (and $25.84 million per married couple) in 2023.
• Does your loved one need money to pay bills or fund other necessities?
  • If Yes: Do they need it more this year than other years? Should you increase the amount? This might be the year to think closely about how your generosity can best help.
  • If No: Are they saving toward something (education, a house, a passion project) that you could contribute to? If you know a loved one who struggles to save, funding an initiative directly, such as college tuition which is not subject to the gift tax limitations, might make a great gift.
• Have you considered opening or contributing to a 529 plan? You can help someone you care about save for college through a 529 plan, a tax-advantaged way to invest for future education expenses. Earnings grow tax-free, and as long as you use the funds for qualified education expenses, they are generally exempt from tax. Anyone, including grandparents, can contribute up to $17,000 per year ($34,000 for married couples electing to split gifts) to any individual’s 529 plan per beneficiary, without reducing one’s lifetime federal gift and estate tax exclusion amount. In addition, you can bundle five years of contributions into one $85,000 contribution ($170,000 for married couples electing to split gifts) per beneficiary, provided you make the required election on a gift tax return for the year of the contribution.

As the holidays approach, prioritizing your financial well-being can ensure a sound start to the new year and ensure you’re able to help the people and causes you care about.

A 2023 Morgan Stanley survey found that over half of respondents (52%) feel that high inflation is still a top concern when it comes to their portfolio, followed by a recession (31%), and market volatility (26%).¹

In times like this, staying focused on your goals can help you avoid getting too anxious about your portfolio and volatility.

This can help you avoid any temptation to make emotional financial decisions and trades, dip into savings or incur high interest rate debt, and keep you—and your family—on track financially.

Giving can be good for you, offering a sense of purpose, community, and helping to make a difference.  Here are a few ways to give back to others in need:

• Contribute to a donor advised fund (DAF), which is essentially an investment account that lets you give to charitable organizations. Typically, you can donate cash and other securities to a DAF, but some also accept “complex” assets such as private stock, artwork, and cryptocurrency, to name a few. When you contribute assets to a DAF, you may take a federal income tax deduction in the year the donation is made, subject to certain limitations.² You can contribute to a DAF through a sponsoring organization who offers them. The Morgan Stanley Global Impact Funding Trust (MS GIFT) also accepts complex assets.

Your donated assets can stay invested and potentially grow, tax-free, until you recommend which charities you want to receive a cash donation, giving you and your family time to decide where your gift could have the greatest impact. If you’ve been investing for a while, you may hold securities that have appreciated significantly. Donating appreciated securities reduces the potential tax hit from capital gains which could be generated by selling the securities and subsequently donating the cash.

• If you’re age 70 ½ or older, consider donating your individual retirement account (IRA) distribution to charity. If you’re at least 70½ and are the owner of an IRA or Inherited IRA, you may be able to make a Qualified Charitable Distribution (QCD) to an eligible organization of up to $100,000 per year, indexed for inflation for tax years after 2023, directly from your Individual Retirement Account (IRA). QCDs generally come with no tax costs to you or the charity receiving the donation—allowing you to count a QCD toward your required minimum distribution for the year, if certain rules are met, and reduce your taxable estate.
• You can also donate stock from your E*TRADE brokerage account. To do this, go to E*TRADE’s forms and applications page.

There are plenty of financially smart ways to give this holiday season. Consider giving your loved ones, and those in need, gifts that will last well into the future.

The source of this article, Your 2023 Guide to Holiday Giving, was originally published on October 31, 2023.

1. MS.com, “Wealth Management Pulse Survey Reveals Growing Investor Optimism,” July 20, 2023.

2. The federal income tax deductibility of contributions to a donor-advised fund are subject to certain limitations. These may include but may not be limited to: Donating long-term appreciated securities may be eligible for a federal income tax deduction of the full fair-market value of the asset, up to 30 percent of adjusted gross income (AGI). Donating cash may be eligible for a maximum federal income tax deduction of 60% of AGI. For long-term appreciated gifts of artwork, antiques, books and other tangible personal property, the deductibility rules depend on how the qualifying charity uses the gift. There are additional asset classes and types of contributions which may have additional and/or different limitations. Also, the tax deduction is only available for taxpayers who itemize deductions. Clients should consult with their tax advisor on the income tax implications and tax planning around gifting activity.

3. One thing to keep in mind is that the SECURE 2.0 Act modified the age at which an individual is required to start taking required minimum distributions (RMD Age). RMD Age is age 70 ½ for individuals born before July 1, 1949, age 72 for individuals born after June 30, 1949, but before 1951), age 73 for individuals born after 1950, but before 1960, or age 75 for all other individuals (note, there appears to be a drafting error in the statutory language, making it unclear when age 75 starts to apply in lieu of age 73, but it appears it was intended to apply to individuals born after 1959). As a reminder, certain IRAs are not eligible for QCDs. If you make a tax deductible IRA contribution after age 70 ½, the amount you can exclude from your taxable income as a QCD generally will be reduced. Work with your Tax Advisor to ensure that you satisfy all the QCD requirements and that QCDs have been correctly reported on your tax return.