The phrase ‘OK, boomer’ was once a tongue-in-cheek response to outdated thinking. However, when it comes to financial planning, it’s time to take a fresh look at an age-old question: when is the right time to give your adult kids money?
In the past, it was common for parents to wait until they passed away, leaving their children an inheritance. But with the rising cost of living, stagnant wages, and increasing financial uncertainty, many experts now recommend starting to give your adult kids money while you’re still alive.
This shift in approach is particularly relevant in today’s economy, where financial security is becoming increasingly elusive. A recent report by the Federal Reserve found that nearly half of Americans would struggle to cover a $400 emergency expense. In this context, giving your adult kids money can be a vital lifeline, helping them to build a financial safety net and achieve long-term stability.
So, how do you know how much you can afford to share without compromising your own financial security? The key is to start with a clear understanding of your financial goals and priorities. Consider your age, income, expenses, debt, and assets. You may want to consult with a financial advisor to get a personalized assessment of your situation.
Once you have a clear picture of your financial landscape, you can start to think about how much you can afford to gift. A general rule of thumb is to aim for 5% of your annual income. However, this can vary significantly depending on your individual circumstances.
For example, if you’re 50 years old and earning $100,000 per year, you might aim to gift $5,000 annually. However, if you’re 60 and living on a fixed income of $50,000, you may want to consider a more modest figure.
It’s also essential to consider the tax implications of gifting money to your adult kids. In the US, you can gift up to $17,000 per year without incurring tax penalties. However, exceeding this threshold can result in gift taxes, which can be complex and time-consuming to navigate.
To avoid these complications, it’s often better to explore alternative gifting strategies, such as creating a trust or establishing a 529 college savings plan. These options can provide a more tax-efficient way to transfer wealth to your adult kids while minimizing your tax liability.
Ultimately, the decision to give your adult kids money is a personal one that requires careful consideration. While it’s essential to prioritize your own financial security, it’s also crucial to acknowledge the value of intergenerational wealth transfer. By starting to give your adult kids money while you’re still alive, you can help them build a brighter financial future and create a lasting legacy.
What to Watch Next:
- The impact of inflation on intergenerational wealth transfer
- The role of financial advisors in helping parents navigate gifting strategies
- The benefits and drawbacks of using trusts and 529 plans to transfer wealth
Conclusion:
In today’s economy, it’s time to rethink the age-old question of when to give your adult kids money. By starting to gift while you’re still alive, you can help your children build a financial safety net and achieve long-term stability. With careful planning and a clear understanding of your financial goals, you can make informed decisions about how much to give and when. Whether you’re a boomer or a younger parent, this approach can be a powerful way to create a lasting legacy and ensure your children’s financial future.
