Best Financial Gifts

Given that this is The Retirement Beat blog and not The Shopping Beat blog I am contractually bound to stick to financially sound gift ideas, rather than take a spin through the Neiman Marcus 2009 Christmas Book. (You didn't hear this from me, but for a bit of over-the-top window shopping check out the $25,000 customized Cupcake Car and the "His & Hers" ICON A5 Sports Aircraft that can be yours for a mere $250,000...lessons included!)

Okay back to the retirement stuff.

Gift Yourself First I realize this is a bit of comedown after contemplating tricked-out cupcake cars, but gifting yourself more financial security in 2010 isn't exactly a bag of coal. Spend an hour or so focusing on two pretty simple 401(k) moves and you will put yourself in position to save a bundle more for retirement:

• Boost your 401(k) contribution rate. Come on, if you haven't yet bumped into the annual contribution limit ($16,500 in 2010 if you are under 50 years old; $22,000 if you are 50 or older) contact H.R. or your plan administrator and boost your contribution rate by a percentage point. Or two. Or three. You know full well that you will not go off the deep end when your take-home pay takes a slight dip. So just do it. Now. No more excuses. How much is enough? Well, setting aside 10 percent of pre-tax income for retirement is good; 15 percent is ideal. That doesn't mean you have to ramp it up in one year. But if you are at 6 percent, push for 7-9 percent this year.

• Get out of Expensive Old 401(k)s. Yes, yet another plea to once and for all rollover any 401(k) from an old job into an IRA. If your old plan offers an unappetizing menu of expensive funds (expense ratios above 1 percent), moving your money into low-cost funds and ETFs with annual expenses below 0.40 to 0.50 percent can add up to tens of thousands of dollars more come retirement.

A Gift the Kids Will Love (in about 50 years) If your teenager had a paying job in 2009 you can give them the gift of a Roth IRA. Your kid doesn't have to contribute his or her earnings; that can come from you (or the grandparents, or aunts, uncles etc.) The only requirement is that your kid had earned income that is at least equal to the amount you contribute.

Make a $500 Roth contribution for a 15-year old today and in 50 years it will be worth nearly $15,000 assuming a 7 percent annualized return. Make the $500 contribution each year from age 15 through senior year of college and then assume that balance will stay put and grow for another 43 years (to age 65) at the same 7 percent, and you've given your kid a $100,000 gift. That's sweeter than a customized cupcake car.

Ribbon photo courtesy of Flickr user Ellie , CC 2.0

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