Our 18yo son (only child) has decided to attend a state school for college. The maximum 529-eligible school expenses he’s likely to have over 4 years is $120K or less (depends on how long he lives on campus), and grad school is unlikely given his major. We have about $160K in a 529, so he should have more than enough to cover any expenses.
We’ve been contributing $1K a month to the 529, and it doesn’t seem to make sense to add any more funds at this point. We already max out our retirement savings, so I was wondering if it would be smart to start gifting the $1K/month towards a down payment or other future needs. Or can we just gift a large amount in the future if/when needed? We know it’s hard for young adults to get established now, and we’re also fortunate to have ample savings ourselves, so hoping we can set up our son for a comfortable start once he’s finished college.
More than enough in 529, should we start gifting towards a down payment?
byu/a-mom-ymous inpersonalfinance
Posted by a-mom-ymous
8 Comments
Hold the money in your account. Not that it likely matters with 529 that size, but FAFSA math will capture higher percentage of kid titled funds vs parent titled funds.
Also once you gift, never know what kid might do with it.
Will he be working while in school and earning more than $7500 annually?
My father gifted me enough to max out my Roth IRA on the first of the year every year in my teens and 20s. I had a part-time job in college, but would otherwise not have even thought to start retirement savings given the other things part-time money goes towards at that stage of life.
If you have ample savings you can always help with a downpayment if/ when he gets there.
But if you do something like what my father did, given that he can rollover up to $35K of that 529 into an IRA as well, you have the option to ensure he has a great start to retirement savings very early in life.
The remaining $6,300 or so can either go in a HYSA each year, go toward other occasional expenses (buying him a nice bed for his first apartment), or be saved for you to use on him for something bigger when he graduates (a new car, a great vacation, etc.).
Just start stuffing it into a taxable brokerage. You might need longterm care, you might want to start a 529 for grandchildren, you might want to give him a down-payment someday. Or pay for a wedding. (To be clear, by maxing, you mean the IRS max, not the employer match amount, right? And you’ve looked into backdoor amd megabackdoor IRAs?)
Giving $1k/month to an 18yo is not a great move. They are so inexperienced. Unless he’s an extraordinary person, those gifts will be squandered. You can certainly gift large chunks later when he’s a fully functioning adult.
No need to gift over time. You can just do it all at once when your kid actually needs the money.
Only difference is that if you give more than $19k in a year, you need to report it to the IRS. But you will not have to deal with gift taxes until you gift more than $13.99M.
Keep all money in your accounts now. Once he is on his feet with a job, and is ready to settle down then you can offer down payment assistance. But I would let him work and learn to adult first before letting him know the money is there.
(1) You say maxing retirement savings. A re you in fact saving 15% of your income and on track for retirement? For high earners, the $24,500 each in a 401k/year is likely insufficient. You may want to take the chance now to evaluate that. Maybe this $1k a month needs to go to an investment account for your retirement.
(2) If that is covered, then I would say save it to give to him for that down payment (or wedding, or car, or whatever) when he needs it. You do not need to gift it monthly now. You do not need to even REPORT to the IRS a gift under $19k per year, and it could be $19k from you and $19k from your spouse. So, $38k. Then, once you do have to report it, it only gets taxed above $15 million per lifetime, which means it is very unlikely to occur.
I would say for your son to have a comfortable start after college, the first thing might be to ensure he has a reliable car (in most places that is a need), and an emergency fund. If you are going to gift the emergency fund, make sure you’ve done some discussion about the purpose and management thereof. I’d gift maybe 3 months expenses, assuming that is between $9k and $12k. A kid that, at 22, has no college debt, a debt free car, and an emergency fund is miles ahead of most other 22 year olds he’ll be working with.
Then, when buying a house seems reasonable (I’d say no sooner than 25 for most people), talk with him about the down payment help you can offer.
You might find that he needs extra time to complete his degree or he decides to change his major at some point.
35k of that can go into a Roth for him. Other than that I guess I’d stop contributing and save somewhere else, unless you have another beneficiary you can change it to