Are you responsible for some of that spending? Do you plan to be? Allow me to plead a different case.
Instead of getting a loved one some green to spend now, how about investing that money on their behalf so they have a lot more green for holidays yet to come? It's a lot easier to set up than you think.
Ugly Nlikeames, Beautiful Benefits
First, you'll need to learn two acronyms that sound like cruel bulldog nicknames: UGMA and UTMA.
UGMA, or the Uniform Gift to Minors Act, is like a low-grade trust fund, in that you don't need an attorney or accountant to start one. Contributions tend to be taxed at a lower rate because they're intended for the benefit of a minor. The downside? Once given, gifts are irrevocable. The assets also become property of the child at the age of maturity. Thus, if Junior wants the use the funds you've invested to take a trip to Greenland, pack him some snow gear and say goodbye.
UTMA, or the Uniform Transfer to Minors Act, replicates the benefits of UGMA in almost every way. The only real difference is that some states prefer UTMA, and accounts may be state-specific. UGMA accounts can be regionally indistinct.
Funding the Account
Generally, UGMA/UTMA accounts -- sometimes called "custodial accounts" -- are designed for flexibility rather than tax savings. The good news is that the tax laws make it easy to get a break on your tax bill.
Children under 19 years of age (or 24 for full-time students) who file as part of a parent's tax return can claim the first $950 of "unearned income" tax-free and the next $950 at the child's tax rate, which historically has been 10%. Gift contributions up to $13,000 annually are also allowed.
Several discount brokerages offer these accounts. Charles Schwab (SCHW), E*TRADE (ETFC), Fidelity, and TD Ameritrade (AMTD) all offer custodial options and similarly styled 529 college savings plans. (Click here for more on 529s.)
Give Junior an Income Boost
But the real beauty of these accounts is that they allow for hands-on, low-risk learning about self-directed investing. From stocks to bonds to mutual funds and ETFs, most of the vehicles we adults use to boost retirement savings are available to our children via UGMA/UTMA accounts.
So spare the gift cards this holiday shopping season. Give the gift of cash and a passion for stock ideas instead. Some of the best are just a click away at Amazon.com (AMZN).
Motley Fool contributor Tim Beyers didn't own shares in any of the companies mentioned at the time of publication. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Charles Schwab and Amazon.com.