Godparent Gifts: Giving a Financial Gift that Matters

Godparents play an important role in a child’s life — you’re tasked with serving as a role model for a child and helping them grow and thrive. As a child’s godfather or godmother, you love and care about your godchildren. You want to see them happy and successful.

So finding the right godparent gift idea is important, whether for the holiday season, a birthday, a special occasion, or just because.

But how can you gift them something that truly matters?

In this article we'll give you everything you need to know about giving your godchild something they'll treasure forever — an investment in their future.

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Why An Investment is the Best Gift You Can Give

Many gift-giving occasions have traditional gifts that godparents and other family members may want to give to a child. 

A baby’s christening or Baptism, First Communion, or another religious milestone may call for a gift with spiritual significance. Other gift-giving occasions like holidays or birthdays don’t have these traditions, creating more flexibility for godparent gifts.

One of the difficulties of giving personalized godparent gifts is that it can sometimes be hard to know whether the recipient will appreciate the gift or will use it. There’s also the possibility that you could accidentally buy something the recipient already has.

This consideration is especially true when giving gifts to a baby or young child. 

It’s hard to know whether a three-year-old will really enjoy a new toy, and for how long they’ll treasure it before they discard it for the next new and exciting thing they can play with.

Giving the gift of money to your godson or goddaughter can help you avoid these pitfalls. But, providing cash to a small child has its own drawbacks and can provide just as fleeting of an impression as a plastic toy. 

Gifting an investment is a great way to help contribute to your godchild’s financial future, while leaving a lasting memory of love. 

While a child may appreciate a new toy or book for a short time, a financial gift has the potential to make a significant impact on their lives and to pay dividends for years to come.

The Impact of Your Gift Over Time

One of the greatest advantages of gifting an investment is that it grows over time. Thanks to compound interest, even a small monetary gift can be worth significantly more by the time your godchild reaches adulthood.

Imagine that you give your new godson or goddaughter $250 as a baptism gift. If invested properly, that special gift has the potential to grow 10% each year (the average annual stock market return, according to the Securities and Exchange Commission).

When your godchild turns 18, your gift of $250 has grown to more than $1,300. Imagine the impact this meaningful gift could have on your loved one. 

Whether it’s helping to fund a college education, starting a business, or planning a gap year adventure, you’ve meaningfully contributed to the child’s dreams.

How to Invest For Your Loved One

If you’re considering gifting an investment to your godchild, there’s no better time to do so. The earlier you invest, the more time your gift has to grow.

How to choose the best investment account

There are many types of accounts where you can deposit a gift to a special person in your life, including 529 plans, custodial retirement accounts, and high-yield savings accounts. But a custodial account offers the best combination of flexibility and investment growth.

Custodial accounts are financial accounts owned by a child but managed by another person (the custodian). The assets in the account belong to the child, but they don’t get control of them until they reach adulthood (age 18 in most states).

The custodian manages the money until that time, which means they can invest the money and help it grow.

Two of the most popular types of custodial accounts are Uniform Transfers to Minors Acts (UTMA) accounts and Uniform Gifts to Minors Acts (UGMA) accounts. 

The accounts are very similar and both can play a positive role in your godchild’s future. The main differences are that UGMAs can only hold financial assets, like cash, stocks, and bonds, but they’re available in all states. UTMAs can hold more asset types, but aren’t available everywhere.

The biggest advantage of a custodial account is that they place no restrictions on how the gifted funds can be used. Unlike other investment accounts for children, the money you contribute to your godchild’s custodial account is an investment in their future goals, whatever those are. Alternatives, such as 529 college savings plans, limit your contribution so the child only receives the benefits if they spend the money on educational expenses.

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Custodial accounts with EarlyBird

When it comes to custodial accounts, EarlyBird offers the simplicity and innovation that families are looking for. 

Parents can set up an UGMA account through EarlyBird and invite loved ones to contribute. The parents choose from five different investment portfolios, and each person’s gift is invested into the selected portfolio.

We know that one thing that can make gifts more meaningful, both for the gift giver and the recipient, is personalization. That’s why EarlyBird allows gift givers the option to give a personalized gift. 

With each thoughtful gift that you give through EarlyBird, you can record a message or a video that the gift recipient can view later. You can use this video to talk about the gift, what you hope they use it for, why you’re giving it, or simply to reminisce about times you’ve spent together.

Even after your godchild has come of age and used the money you’ve given them, they can still return to the personalized video to remember the time you’ve spent together and how you’ve cared for them and helped them grow.

Gifting 101: Taxes and Complications

Here are a few things to keep in mind when investing in the future of your godchildren: 

Gift taxes

People who give monetary gifts to friends and family members may be responsible for paying a gift tax. 

Under current tax rules, a person can give away up to $11.4 million, tax-free over the course of their entire life. For many people, this is far more than they’ll give in their lifetime, but keep in mind that anything left to heirs in your estate counts against this limit. Anything over that amount will incur the estate tax.

Each tax year, you can give someone up to $15,000 as a tax-free gift before it starts counting against your lifetime exemption. 

If a child’s godmother or godfather wants to give financial gifts, making gifts under the $15,000 annual exclusion limit allows them to give a large amount over their godchild’s childhood without tax consequences.

The $15,000 limit applies per recipient, so you can give $15,000 each to multiple people without incurring the gift tax. 

The limit also applies to each individual gift giver. If you’re married or have shared finances with another person, you can each give $15,000 to a godchild, tax-free, meaning a couple can gift $30,000 per year.

In all cases, the gift recipient won’t face a tax liability for receiving a gift. The donor is always responsible for gift taxes.

Taxes on earnings

While your godchild won’t have to pay gift taxes on your monetary gift, they’ll pay taxes on any earnings your investment generates. 

One of the benefits of custodial accounts over other investment options is that the money belongs to the child, meaning it’s taxed at the lower child tax rate (also known as the kiddie tax). Taxes apply for any child with interest, dividend, and unearned income that exceeds $2,200.

Investment options

One of the factors that can complicate monetary gifts is choosing a specific investment. Is it best to gift a particular stock, or is it better to gift cash and let the parents decide?

EarlyBird has a simple solution to this problem. When parents create an EarlyBird account for their children, they’ll have the opportunity to choose between five different investment portfolios ranging from conservative to aggressive. They also choose to allocate 5% of the account to value-based funds such as those that promote diversity or environmentalism.

Anytime a loved one contributes to a child’s account, the money is automatically invested based on the account’s current selected allocation. That way, loved ones can gift money to their child and make sure it makes it into the custodial account without having to choose the investments themselves.

Gift ownership

Monetary gifts can be tricky in that you can’t always be quite certain where they end up. Cash can end up anywhere. Even an investment into a 529 account can be redirected to a different child.

Contributing to a custodial account through EarlyBird is an excellent way to make sure your godparent gift serves as an investment in the child’s future. 

They can’t access the money until they reach adulthood, meaning they can’t impulsively spend the money as soon as they receive it. But since it legally belongs to them once it’s in their custodial account, you can rest assured that it will be waiting for them when they turn 18 (or 21, depending on the state).

Conclusion

Choosing the perfect gift for your godchild can be difficult. Whether it’s a Christmas gift, birthday gift, or something else, you want to give them something that will make them happy. But you also want to give them a great gift that matters. 

Giving a monetary gift is a great way to provide for a child in your life over the long run. By contributing to a custodial account through EarlyBird, your gift can grow over time. The recipient will have the flexibility to use your gift to follow their dreams with no strings attached.

Download EarlyBird on the app store today to start investing in the kids you love.

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