The Wall Street Journal had an article over the weekend discussing seven smart money moves to make during the holidays. While they are all worthy nuggets of advice, one of the most interesting to me was number four - "Set up funds for the children (or grandchildren). While this may have limited applicability to Gen Y, it's important nonetheless, especially if you have been a recipient of gifts from a family member. Substantial financial gifts are common during Christmas time, especially as part of an estate planning strategy. This year, tax law dictates that you are able to give up to $13,000 as a gift, tax-free!
While I recommend giving this money if you are able to, I would also like to mention what to do with it if you receive such a gift for the holidays this year. First, max out your Roth IRA contribution for the year and consider investing the majority (75% or more) in index funds should you own them in your Roth. Next, use the remaining 25% for extra liquidity by holding the cash in a savings account or money market with checkwriting capabilities. Lastly, consider giving back to your community, a favorite charity or purchasing something you enjoy. By both saving and investing this money wisely, you will see that your family's financial fortunes in the future are just as good (or better!) as they were when your relative gave you the gift.