Money-smart gifts for a new college graduate

A watch, briefcase, business card holder, and small kitchen appliances are some of the traditional gifts for college grads embarking on a career or moving into a new apartment.

If you want to give something with lasting impact, consider these financial gifts:

Help build an emergency fund. If the pandemic has taught us anything, it's that we need emergency savings to see us through the unexpected. The standard advice is to set aside three- to six-month's worth of living expenses in an emergency fund.

Help a young worker reach that target faster — and develop a savings habit — by offering to match contributions they make to their own emergency savings.

Seed a Roth IRA. Is the grad already working or starting a job soon? If so, gift money to open a Roth IRA. The maximum Roth contribution for 2021 is $6,000, but the recipient won't be able to put in more than they earn for the year.

A Roth is particularly appealing for younger investors who may likely be in a higher tax bracket when they retire. Money goes into the Roth after taxes have been paid on it, but withdrawals are tax-free after age 59½. The Roth is also flexible. Savers can withdraw contributions — but not earnings — at any time. Up to $10,000 of earnings can be withdrawn tax- and penalty-free if the money is used to buy a first home and the Roth has been open for at least five years.

Pay down credit card debt. College graduates leave school with an average credit card balance of $2,351, according to a report by student loan giant Sallie Mae. Helping to whittle down that debt will reduce the amount they pay in interest.

If you're concerned that the grad will just run up the debt again and not learn the value of saving, you can set up your gift as a match. For example, for every $1 they pay toward card debt, you can make a matching contribution to their emergency fund.

Reduce student loan debt. Borrowers with a bachelor's degree graduated with an average of $28,800 in student loan debt in 2019, according to the College Board. You can help ease that burden by making a monthly payment or two on the graduate's student loans.

Support continuing education. Many families open 529 college savings plans to help an undergrad pay for college. If your gift receiver plans to pursue a higher degree, you can contribute to the family's 529 plan to assist with future tuition bills.

Give the gift of investing. Have the grad set up a brokerage account if they don't have one yet. Then you can transfer to the account shares of companies they may be interested in owning, like for a favorite tech business or retailer.

Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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