Gifting money to your children? 5 questions to consider

If you’re thinking about gifting money to your children—to fund their education, help them with a down payment on a house or assist them through financial hardship—there are several things to consider. From the amount of the gift itself to tax limitations, it’s essential to understand the various aspects of gifting. In this article, we cover five things to keep in mind if and when you’re ready to gift money to your children.

1. Can you afford it?

It’s easy to get swept away with wanting to help your children, especially if they’re in financial distress. But before you write them a check, be sure that gifting money won’t impact your current or future financial situation.

2. What are the tax implications?

When gifting money to your children, you need to be aware of any tax implications. Make sure you consult with an attorney or accountant about any taxes that you or the recipient may owe. You can also refer to the IRS website for more information.

3. What is the maximum gift amount you can give?

According to the IRS, for tax year 2023, you may give a child up to $17,000 within the calendar year without paying a gift tax or filing a federal gift tax return. A married couple may give up to $34,000 to any individual. Anything above this amount is taxable and can count against your lifetime estate and gift tax exemption, which is $12.92 million for individuals and $25.84 million for married couples filing jointly for tax year 2023.

4. How early can you begin gifting?

The age when you can begin gifting money can depend on legal and financial considerations. Many parents can start gifting to their children as soon as their children are born, but there can be restrictions on how the money is managed or accessed until a child reaches a certain age. Under the Uniform Gifts to Minors Act (UGMA), financial products like stocks, bonds and mutual funds can be gifted to minors that can be accessed by the child when they reach a certain age.

5. How can you maximize your gifting?

There are several strategies when it comes to maximizing what you gift to your children:

  • Education funds like 529 education savings accounts offer tax advantages for educational expenses. The funds grow tax-deferred, and, as long as funds are used for qualified educational expenses (e.g., tuition, books, room and board), any withdrawals are tax-free.

  • Trusts can give you more control over the distribution and use of gifted funds. They allow you to set specific conditions, like age thresholds or how the funds can be used, which can help preserve and grow the gifted funds.

  • Long-term investments such as stocks, bonds or mutual funds allow gifted funds to potentially grow over time, which can provide a greater financial benefit to your child in the future.

Get guidance before gifting

Whichever direction you choose, it’s always best to consult with your accountant or tax lawyer to ensure your monetary gifts don’t put you over any taxable thresholds. Also, consider providing financial education to your children so they’re equipped with the financial knowledge they need to make informed decisions in the future. 

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