Not spending it? The low-hanging fruit of gifting to family members

May 21, 2023

For some retirees, a point in life may be reached where the likelihood of you spending down your assets becomes a low probability. A factor of positive market returns or low levels of spending earlier in retirement may have left you with a larger nest egg than you started with. The problem isn’t uncommon.

Lifetime gifting is a popular subject we often discuss with clients who may find themselves in such a circumstance. But the most frequent question often isn’t around the intention, but how to go about it. There are pros and cons to funding various types of accounts for the next generation, and several other factors. However, the low-hanging fruit of gifting is to start by identifying simple accounts you can fund for kids or grandchildren for their benefit over their lifetime.

The first is a 529 plan. Administered by each state, 529 plans are education savings vehicles. A common misconception about these plans is that they may only be used for college. Not true. As a result of recent legislation, they can be used for virtually any education and even some trade or vocational schools. You can gift up to the annual gift exclusion as an individual ($17,000 in 2023) or twice that as a married couple. You can also super-fund this plan with a one-time $100,000 contribution that counts for five years’ worth.

These funds may be subject to a state tax deduction, but more importantly they grow tax deferred, and the gains can be pulled out tax-free if used to reimburse educational costs. The worst case is that if they’re not used for education, you may owe tax and a 10% penalty on any earnings. As a result of very recent legislation, up to $35,000 of these dollars, if unused, can be rolled over to a Roth IRA for the beneficiary if certain rules are met.

The second is a Uniform Transfer to Minors Account. UTMA accounts act as a taxable brokerage account for someone who is under the age of majority. Funding these accounts is permitted up to the annual exclusion, or if greater, the giver would be required to file a gift tax return. Dividends, capital gains or other income generated as part of the investments must be paid annually. Also, once the beneficiary reaches the age of majority, they are entitled to the funds. Since that means at age 18 in most states, that might not be desirable.

Then there is outright gifting. As mentioned above, you can gift anyone for any reason $17,000 per year without tax implications. So, if you’d like to help your grandchild buy their first car, home, or whatever, you can do so. This can be a rewarding experience to see these funds put to good use during your lifetime and making an impact in your family’s life. Of course, there may be benefits to you of getting IRA money out at a lower tax rate than your heirs pay, or avoiding estate or transfer taxes.

There are several easy solutions to make an impact on your family or to a charitable cause later in life with assets you may not “need” to continue to fund your retirement. It can be a lot more fun to see the impact of your gift than to leave it behind. For more information, contact Jeter at 410-677-4848 or, or go to

Robert Jeter, CFP, CRPC, is a financial advisor and vice president of InFocus Financial Advisors Inc., whose firm focuses on the needs of people in retirement. He is an investment advisor representative offering securities and advisory services through Cetera Advisors LLC, member FINRA/SIPC, a broker dealer and a registered investment adviser.
The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.

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