Savings bonds, stock, and other money gifts for kids

Every birthday and holiday, well-meaning relatives face the same question and reach for the same answer: another toy that breaks by spring. But a money gift — a savings bond, a share of stock, a 529 contribution — can do something a toy can't: grow for years and quietly teach the recipient how money works. The catch is that these gifts vary enormously in how they're taxed, how they affect financial aid, and how much they actually engage a kid. This is the field guide to giving money that grows, sorted by what job you want the gift to do.

The main money-gift options

• U.S. savings bonds (Series EE and I): bought through TreasuryDirect, backed by the federal government. Series I bonds adjust with inflation; EE bonds are guaranteed to double over a set holding period. Safe, simple, and boring in the good way — though they must be held to earn their full value.
• Fractional shares of stock: services now let you gift a slice of a company a kid knows — Disney, Nike, Roblox. The engagement is the point: a kid who owns 'part of Disney' checks the price and asks questions a bond never provokes.
• Index fund shares in a custodial account: the grown-up version — broad, diversified, and the actual path to wealth, though less emotionally exciting than a single famous stock.
• 529 plan contributions: the most powerful gift for education, growing tax-free for college. Many plans offer gift links so relatives can contribute directly. Treated gently by financial aid when parent-owned.
• A custodial Roth IRA contribution: only possible if the kid has earned income, but unmatched for long-term growth — a gift that could be worth a hundred times its size by retirement.

Matching the gift to the goal

The tax and aid fine print

1. Savings bond interest is exempt from state and local tax, and federal tax can be deferred until the bond is cashed — sometimes even excluded if used for qualified education, subject to income limits.
2. Stocks and funds in a custodial (UTMA/UGMA) account are subject to the kiddie tax on investment income above the annual thresholds, and count as the child's asset at 20% in the aid formula.
3. 529 contributions grow and come out tax-free for qualified education, and a parent-owned 529 is assessed at a maximum of 5.64% for aid — far gentler than a custodial account.
4. Anyone can give up to the annual gift-tax exclusion per recipient without any gift-tax paperwork; almost every kid gift falls far below this, so gift tax is rarely a real concern.
5. A custodial Roth requires the child to have earned income at least equal to the contribution — a birthday check can't fund it unless the kid actually earned that much.

The bottom line

Money gifts beat another disposable toy because they grow and teach — but only if you match the gift to the job. Reach for a savings bond for safe, inflation-protected growth, a fractional fun share for engagement, a 529 for tax-free college money, a custodial index fund for real long-term growth, and a Roth for a working teen's unbeatable compounding. Mind the kiddie tax and the 20% aid hit on custodial accounts, split the gift when you want both engagement and growth, and always spend two minutes explaining it. A well-chosen $100 can still be teaching and growing long after any toy is in a landfill.