What to do (and ways to save) when you get a gift of cash (2024)

FAQs

What to do when you are gifted money? ›

Set – and stick to – a budget.

Make a list of every person you want to give a gift to along with a dollar amount you plan to spend on each of them. Add up the total. Do the two numbers match? If so, great — you have your gift-giving budget under control!

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Cash Gifts: You can use cash bills to give money in an envelope or in another creative way. Check or Money Order: Using a check or money order adds a bit of security to your cash gift because only your intended recipient can use it. In contrast, anyone who intercepts cash bills can use them.

If you receive a gift, you do not need to report it on your taxes. According to the IRS, a gift occurs when you give property (like money) without expecting anything in return. If you gift someone more than the annual gift tax exclusion amount ($17,000 in 2022), the giver must file Form 709 (a gift tax return).

The three-gift rule

Before the four-gift rule gained popularity in recent years, some parents pledged just three gifts for their children. It's a reference to the three gifts brought to baby Jesus by the Three Wise Men: gold, frankincense and myrrh. Of course, these are not practical gifts in this day and age.

One thing we can do to slow the piles of presents is to redirect well-meaning family members toward alternative gift ideas. Start the conversation with “I have some fear in telling you this.” Try explaining to family members how the kids don't play with the toys they have and they are overwhelmed by all the stuff.

If the aggregate value of gifts from the same source on a given occasion exceeds $20, you may decline any distinct and separate item in order to accept those items aggregating $20 or less. Widely attended gatherings.

Simple Strategies for Building Your Savings

Paying attention to where your money goes, creating a realistic budget, and setting short-term and long-term savings goals will help create a solid foundation. With a plan in place, getting started is as simple as opening an account and making deposits.

Is $4000 a good savings? ›

Ready to talk to an expert? Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.

50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).

An eye-catching solution for gift wrapping money would be to enclose it in a satin or velour pouch. However, don't forget to include a card, on which you should write by hand that the gift signifies a dream come true or a specific pleasure.

Giving cash is the easiest and most straightforward way to accomplish gifting money to family members. You can write a check, wire money, transfer between bank accounts, or even give actual cash.

Annual gift tax exclusion

The gift tax limit is $17,000 in 2023 and $18,000 in 2024. Note that this annual exclusion is per gift recipient. So you could give away the limit to several different people in a single year and still not have to file a gift tax return and possibly pay the gift tax.

Essentially, gifts are neither taxable nor deductible on your tax return.

A gift tax is a government tax imposed on those who give money or property to others in exchange for nothing (or less than total value). There is typically a tax-free gift limit to family members until a donation exceeds $15,000 (jumping up to $16,000 in 2022). In these instances, the IRS is usually uninvolved.

Can my parents give me $100,000? Your parents can each give you up to $17,000 each in 2023 and it isn't taxed. However, any amount that exceeds that will need to be reported to the IRS by your parents and will count against their lifetime limit of $12.9 million.