Tax-Free Gifting

Under current IRS rules, you can gift up to $14,000 per year tax-free to anyone you choose, such as:
 
  • Children
  • Grandchildren
  • Nieces or nephews
  • Friends
 
Gifting has merit for a variety of reasons:
 
  • You can feel secure that your loved ones’ needs are taken care of
  • Funding for education
  • Lessen estate taxes paid by your heirs
  • Take advantage of compound interest, which Einstein deemed “The Eighth Wonder of the World”

How Gifts Can Grow Through Investing

Over the long term, U.S. stocks have delivered a compounded annual return of around 8%.* Although nothing in today’s world is guaranteed, you can use the classic Rule of 72 to estimate the number of years it will take to double an investment at a given rate of return. Using 8% as an example, a gift of $14,000 will double in 9 years to approximately $28,000 (72/8 = 9), and more than triple in 18 years to over $55,000.

Single One-Time Maximum Gift of $14,000**
YearBalance ($)
014,000
927,990
1855,940

Alternatively, contributing a lower amount each year of $1,000 for 14 years at 8%, a newborn would potentially have $40,000 at age 18. The key is to get started now and stick to the plan, in good markets or bad.

Annual Gift of $1,000 over 14 years for a total of $14,000**
YearBalance ($)
01,000
913,490
1840,450

The gift of knowledge can be just as important as a monetary one and this simple illustration provides a vivid lesson. An individual making tax-deferred contributions to a retirement account of $2,000 annually for 10 years beginning at age 18 ($20,000 total) at 8%, can accumulate nearly $600,000 by age 65.

Annual Gift of $2,000 over 10 years for a total of $20,000**
AgeBalance ($)
182,000
2833,790
3872,960
48157,510
58340,060
65582,800

However, individual who waits until the age of 28 to start their annual $2,000 contributions at the same rate of return, would accumulate just $475,000. The “magic” of compound interest reinforces the lesson to invest early.

Annual Gift of $2,000 over 38 years for a total of $76,000**
AgeBalance ($)
282,000
3835,950
48108,910
58266,430
65475,880

Who to Contact with Questions

Contact the Shareholder Services Team at 800-432-7856, or send an email. The Team is available 8 a.m. to 7 p.m. CT, Monday to Friday.

©2017 Heartland Advisors | 789 N. Water Street, Suite 500, Milwaukee, WI 53202 | Business Office: 414-347-7777 | Financial Professionals: 888-505-5180 | Individual Investors: 800-432-7856

*Source: Political Calculations, “The S&P 500 at Your Fingertips,” 10/31/1986 to 10/31/2016
**Assumes 8% as hypothetical rate of return

The Rule of 72 is a mathematical concept and is not illustrative of any Heartland investment. The examples generated are hypothetical and are for illustrative purposes only. It does not guarantee or predict how an investment will perform. It is an approximation of the effect of given rates of return and assumes a long-term investment horizon of greater than 20 years. It is important to keep in mind that most investments, including mutual funds, do not grow at a steady rate and the Rule of 72 should only be used as a guide in setting long-term investment goals.

Neither Heartland nor any of its representatives may give legal or tax advice. For guidance on a specific situation, investors should consult their tax adviser or legal counsel.

Past performance does not guarantee future results.

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