With the need seemingly greater than it was for previous generations, it’s not uncommon for parents to financially support their adult children—at least at some level. Providing that assistance, however, shouldn’t happen without first setting boundaries, says Stephen Williams, co-head of BMO Private Bank’s U.S. Financial Planning Strategy.
“Parents need to keep in mind that today’s young adults face unique financial challenges and may require different levels of support than they themselves received,” Williams explains. “If parents and children have frank conversations with each other about the amount of support they expect to provide or receive, they can avoid misunderstandings that could put their financial situations in jeopardy.”
Williams advises hosting a conversation with your own children, and considering these tips.
1. Start now. Gaining an understanding of the basics of personal finance at a young age can help set up a child for future financial success and independence.
2. Consider a Roth IRA.A Roth IRA can make savings more tax-efficient and extend parents’ ability to use their resources to meet financial goals. Although the amount that can be contributed annually to a Roth IRA is limited by IRS guidelines, income earned in the account is generally not subject to any federal or state taxation.
3. Use Gift Tax rule exceptions.If appropriate, take advantage of exceptions in Gift Tax rules that can help to increase the benefit available to children and dependent parents. For example, gifts made for tuition purposes or to pay medical expenses are not subject to the Gift Tax.
4. Leave a legacy of financial comfort. Parents can ensure their estate plans, including wills, provide for their children adequately. Proper insurance planning to supplement income of a surviving spouse or to support children who may be struggling financially is also critical.
Source: BMO Wealth Institute
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