Gifting money to your children can be one of the biggest blessings, but one that should require thoughtful consideration. We spend many years taking care of our children both physically and financially, so it’s our natural tendency to continue to want to help. And we certainly may have the means to do so, but it’s good to consider the purpose and effect of your gift.
Here are some milestones to consider as you think through opportunities to help your children financially through different phases of life. I focused on the decades that tend to have more specific milestones, but know that gifting can happen at any point for many other reasons or purposes other than what’s listed here.
When your children are in their 20s-30s
Typically this is the beginning of what often can be an expensive couple of decades. These are some of the expenses we see for people during this stage of life:
- College – Often, an undergraduate degree is being pursued, but we’ve seen many continue into graduate programs or other specialty areas. Even with scholarships and financial aid, the cost of education can be high and even burdensome for some that finish with high amounts of student loan debt.
- New Home – Typically, when people finish college and get their first job, the opportunities for making more significant, permanent purchases present themselves. It can be challenging to accumulate a level of savings needed for a healthy down payment, so many young adults have to opt for higher interest or less favorable loan terms.
- Wedding – Wedding costs have dramatically increased over time and may come when young adults are still relatively new in the job world, and student loans are still being paid down.
- Babies – Statistics are showing that people are waiting longer to start a family. Waiting to have children can definitely help from a financial standpoint.
So what does it mean for you and wanting to help your children through this particular stage of life? Some of it takes some pre-planning on your part. The most important thing to remember is, it must work with your personal financial goals. In other words, be financially aware of how your gifting impacts your financial picture. Then strategize on what makes the most economic sense.
- College funding using a 529 Plan can be a great way to help with children’s education expenses in the future, but the goal is to start saving early and regularly.
- Helping kids get enough of a down payment on a home to get more favorable financing terms can drastically reduce the overall interest/expense they pay over time.
- Giving your children cash to put toward a wedding or honeymoon may limit credit card usage, thus saving interest.
- Helping with childcare – either by physically caring for your grandchildren periodically or contributing toward childcare costs. Unfortunately, childcare often carries a high price tag, especially when considering the average monthly cost of daycare facilities.
When your children are in their 40s-50s
This life stage tends to be far more stable, financially speaking. Typically people are in their peak earning years and can absorb additional costs as they come. These are some of the areas of focus we see for people during this stage of life:
- Home renovations OR home upgrades – This can be the age when people get the itch to move, remodel or renovate what they have to accommodate their family needs better.
- Travel – Taking time away to travel with family and friends.
- College savings – Typically, student loans are paid off, but college savings for their children begin or rapidly increase as income further allows.
- Retirement savings – Peak earning years may allow for additional focus on retirement savings.
So what should you consider as options for helping during this stage of life? Often, parents opt to do annual cash gifts since the expenses seem to be less specific. Technically each person can gift another person $15,000 per year free of gift tax. Meaning an adult couple could gift a child and their spouse up to $60,000 per year, thus giving your children the flexibility to use or save this as they see fit. Another consideration is opening a grandparent 529 Plan to help with college expenses for your grandchildren.
Considerations to Make Before Gifting
These milestones are meant to be conversation starters for how and when you want your financial resources to be a factor during your children’s lifetime. There are many considerations you should take into account:
- Can I financially afford it?
- What sort of tax impact might this have?
- Should this gift be given now or left as a legacy when I’m gone? Or some combination of both?
- Will this be a one-time gift or an ongoing gift?
- Are my kids going to rely on it?
It’s good to have regular check-ins with your financial advisor to help you craft a plan for milestone gifting. There are many different ways to structure gifting, so having a thought-out plan will be important.
All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. All financial products have an element of risk and may experience loss. Past performance does not indicate future returns. Opinions expressed herein are solely those of Birchwood Financial Partners, Inc., and our editorial staff. Material presented is believed to be from reliable sources; however we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviser or qualified professional before making any financial decisions. We are not affiliated with or endorsed by the Social Security Administration or any government agency. The inclusion of any link is not an endorsement of any products or services by Birchwood Financial Partners. All links have been provided only as a convenience.