Christening, or baptism, is an important religious ceremony that children go through in Catholic or various Christian religions. It stands as a symbol for purification before the eyes of God, a way to wash off the Original Sin, and serves as the child’s introduction to the church and the community as a fellow follower of the faith. Parents and godparents play a significant role in this ceremony, promising to raise the child according to the religion’s teachings.
And with the celebration of christening comes the giving of gifts. Traditional ones include toys, clothes, necessary equipment like strollers and walkers for younger children, and money. Godparents are expected to give more personalized gifts to express the momentous occasion, and it can be hard to choose what you want to give your godchild that can both be enough to show your affection to him or her and stand out among the other gifts. One great option to consider here is to give your godchild a financial gift that can grow over time, something that they can fully benefit from some time in the future.
What to consider when choosing to give a financial gift
It’s hard to quantify the significance of a gift if you’re the one giving it, especially to a child. A toy given during a christening may end up in a pile once the kid grows up, or it can be an important part of their childhood. Depending on the religion, you may be required to give a gift with religious significance.
Regardless of the result, giving gifts should ideally be tailored to your intended path of guidance for your godchild. If you choose to give them financial gifts like the ones we’ll list below, you signal to your godchild that you are a source of sound financial advice while they are growing up.
Aside from that, there are a few practical considerations that you need to look over before choosing this type of gift.
Taxes
Giving monetary or equivalent gifts can be subject to taxes. As of the time of writing, gift taxes will not be imposed on gifts to any single recipient below $15,000 per year. If you’re a couple, that amount is doubled for any single recipient. Most people wouldn’t need to worry about that kind of tax as it’s statistically unlikely that they’ll spend that much on gifts to one person annually, but it is still important to get all the necessary details out of the way. Aside from the yearly exemption, there is also a lifetime exemption of $11.7 million. However, this lifetime amount will include any property or money left to heirs in your estate. Anything over that amount accrued over your lifetime will be subject to estate tax.
Another thing to consider is earnings taxes. If you give your godchild stocks or a high-yield savings account, their paper and actual earnings, dividends, and interests exceeding $2,200 are subject to taxes.
Inflation
When choosing a financial gift, you need to consider the impact of inflation. The average interest for savings accounts across the U.S. is 0.36%, while the inflation rate on May 2023 is 4.0%. Like with any other financial instrument, any gift you decide to give your godchild must be able to withstand inflation at a reasonable rate.
Financial gift ideas for Christenings
There are a few choices for financial gifts to a godchild. Again, these are personal preferences, and you need to consider your own financial status and those of potential contributors like family members before deciding. But if your mind is set, here are the best types of financial gifts for christenings.
529 College Plan
529 College Plans, or qualified tuition plans, are savings plans that allow family members to contribute to a child’s future educational expenses. 529 plans were primarily used for college education but have been expanded to include all levels, including kindergarten. These types of plans are noted for being tax-advantaged, meaning taxes on any income are deferred as long as the money is used for qualified educational expenses like living costs, tuition, equipment, books, and essential utilities like the internet and software for specific courses.
One factor to consider when looking at setting up a 529 Plan is its contribution ceiling. The maximum contributions depend on which state you’re in, and they apply to all donors and contributors as a whole. For example, if your state has a $235,000 limit for 529 accounts, no one else will be allowed to contribute once that ceiling is reached. It’s also important to note that unqualified withdrawals on 529 accounts will be subject to an average of 10% in penalties plus any taxes owed for that amount.
Custodial savings accounts
Start off your godchild’s future with a custodial account. These are accounts created at financial institutions where you can invest in stocks, mutual funds, savings accounts, and other types of securities. It’s an excellent way to allow parents and other family members to invest in a child’s future, and it will be available to him or her once they reach legal age (18, 19, or 21, depending on your state’s laws.) Whoever creates the account for the minor (the custodian) usually has fiduciary control over management, investments, deposits, and withdrawals. Speaking of which, withdrawals on custodial accounts do not come with penalties as long as they are used for the child’s benefit. Any income generated from these accounts is subject to taxes at a minor’s rate, and you, as the godparent, may need to file tax returns as a result.
There are two types of accounts that you can open for your godchild. First is the Uniform Gifts to Minors Act account (UGMA.) Establishing a UGMA account is essentially a way for the minor to purchase stocks, bonds, mutual funds, and other types of securities and financial products through the custodian. These types of accounts do not have a limit for deposits, so any family member can deposit as much as they want without additional fees as long as they consider the gift tax limit.
The second type of account, Uniform Transfers to Minors Act (UTMA), is similar to UGMA accounts, with the exception of an expanded transfer list. UTMA accounts allow deposits of real property like real estate, jewelry, art, and other similar properties. However, these types of accounts are not as widely available as UGMA accounts, so it’s best to do your research before choosing the most appropriate account.
One more thing to consider when giving your godchild a UTMA or UGMA account is that these count as the child’s property and are included in calculations for eligibility for federal financial assistance for college.
Insurance inclusion
Since we’re talking about practicality and long-term financial gifts, adding your godchild to your insurance policy is a viable, if slightly awkward, option. You can designate an adult custodian to receive and manage any proceeds from your insurance policy if you die while they are still under legal age. Again, the custodian will have a fiduciary responsibility, meaning that the proceeds must only be put towards your godchild’s needs. It’s important to manage this arrangement in a way that will minimize extraneous expenses like attorney or court fees, so talk to your insurance provider to get all the necessary details.
Closing thoughts
Christenings gifts are not limited to what we’ve discussed above — nor are they limited to financial gifts — so be sure to explore your options to provide the best contribution possible to your godchild’s future.
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