Practical Tax Advice Your Grandmother Would Give You
It's fine to make a lavish gift to adult children now and again, especially for children who are otherwise diligent and make no demands. But always coming to the rescue can jeopardize both your child's drive and your retirement security.
In the final years before retirement, there may not be a huge buffer for you. A child in his or her 30s or 40s has lots of options for income generation; a retiree does not. For example, if you have long accumulated and have a comfortable retirement, constant gifts can soon deplete your investment account (and cost you considerable tax dollars). Later, emergency savings may not be enough to cover necessary costs of an unforeseen event.
If your adult children are not prudent with 1) their own money and 2) the money you have gifted them, who is going to have funds available to help you? A good question to ask yourself regarding extending financial assistance to an adult child is “Should he be able to handle this situation for himself?” If the answer is yes, you have some thinking to do.
It is common for a medical issue to occur and a retiree be put in a position of having to find housing. With his or her assets depleted, the only care available may be in a Medicaid nursing home. Without the prior handouts, there could have been options, including a better facility or licensed care at home.
When clients say they want to help their adult children, I am HAPPY to run the numbers for them and tell them how it will impact their retirement plans. The regret of “If only I had not…” is a reality that cannot be reversed. Sometimes “no” is the most loving word a child can hear.