The New Tax Rules for Giving to Your Kids or Grandkids

Plus, tips from financial advisers on how to give strategically

Penelope Wang,

AARP

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Published January 22, 2026

a man uses a tape measure to measure a giant gift box

Rob Dobi

In today’s economy, with rising consumer prices, job instability and a lack of affordable housing, many younger adults are struggling to find their financial footing. Those pressures are prompting older generations to offer a hand, though sometimes at a cost to their own financial well-being.

According to a 2025 AARP survey, 3 out of 4 parents age 45 or older are financially supporting at least one adult child (age 18 or older). On average, parents provide about $7,000 annually.

In addition, 42 percent of parents reported financial stress and 35 percent reported emotional stress due to supporting their adult children. Even more unsettling: 9 percent said they had retired early to provide more support to their adult kids.

Grandparents are also pitching in. In a 2025 survey by SeniorList, a resource and reviews website for older adults, 96 percent of grandparents reported they provide financial support to their grandkids, to the tune of more than $3,900 a year, on average.

If you intend to give substantial gifts to your children or grandchildren, it’s essential to not put your retirement security at risk. You’ll also want to weigh the pros and cons of giving money now versus leaving the money to your heirs in your estate after your death.

“It may make sense to give money today, when your children and grandkids may benefit from a down payment or other support, but you need to understand the trade-offs,” says Charles Kyle Harper, a certified financial planner in West Columbia, South Carolina.

Here’s what you need to know about the new tax rules for giving money to kids or grandkids.

Know the gift tax rules and plan accordingly

The good news: Neither you, nor your beneficiaries, have to pay taxes on most gifts. That’s because there is an annual federal gift tax exclusion, which is the amount of money you can give to as many individuals as you’d like tax-free up to a cap, which is periodically adjusted for inflation. For tax years 2025 and 2026, the annual limit is $19,000 per recipient.

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If your gift exceeds that amount, the excess will be deducted from your lifetime tax exemption. That’s the maximum that you can give to people without triggering federal gift taxes, either during your lifetime or through your estate. For 2026 the lifetime maximum, which was raised by the passage of the One Big Beautiful Bill (OBBB) in July, is $15 million for single filers and $30 million for married couples filing jointly. Like the annual gift tax exemption, the lifetime limit is periodically adjusted for inflation.

“Most people will never bump up against” those tax limits, says Mark Luscombe, a certified public accountant (CPA) and principal analyst for Wolters Kluwer Tax and Accounting in Chicago.

Give cash strategically

In planning your gifts to younger generations, give some thought to how the money could be spent. Perhaps it can help your adult child buy their first home or purchase a larger car as they expand their family.

Concerned your kid or grandkid will waste the money in some way, like splurging on luxuries? “Money can be an amplifier for the beneficiary’s financial habits,” Harper warns.

Offering to pay certain bills directly, such as your adult child’s health insurance premiums or your grandchild’s college tuition, could be a good approach, says Jeremy Eppley, a certified financial planner in Owings Mills, Maryland.

He suggests writing a note to your kid or grandchild about your intentions for the gift. “It’s an opportunity to share your financial values,” he says.

Consider starting a 529 plan

For those seeking to help the younger generation afford college, a 529 college savings plan can be an effective way to give a gift. These accounts offer tax-free growth and tax-free withdrawals if the money is used for qualified educational expenses such as tuition, textbooks, and room and board. Plus, you may get a state tax deduction or credit for your contributions. (Note: Assets in parent-owned 529 plans have only a modest impact on federal financial aid. Grandparent-owned 529s are not counted at all.)

If you can afford to give generously, 529 plans offer an accelerated gifting option, which allows you to make a five-year lump sum contribution in a single year. In 2026, two parents or grandparents can make accelerated gifts of up to $190,000 total. “For those who are seeking to move money out of their estate and fund higher education, it’s a great way to front-load your gift,” says Lorne Abramson, a certified financial planner in Burlingame, California. The caveat: You’ll have to wait four years before making another contribution to the plan if you make the maximum accelerated gift.

Some families may hesitate to put money into 529 plans, perhaps out of concern that their kids might not go to college. But 529 plans offer more flexibility than in the past. Funds in a 529 plan can now also be used for K–12 private school tuition. In 2026 families can withdraw up to $20,000 per year for K–12 students. Money in a 529 plan can also be used to cover certain costs for eligible programs that provide technical or professional credentials, such as a trade school degree or occupational license.

Jumpstart a grandkid’s retirement saving with a Roth IRA

If your grandchild has a job and is earning income that they’re reporting to the IRS, consider helping them set up a Roth IRA and contributing money to it, Abramson suggests. With a Roth IRA, you fund the account with after-tax dollars, and the money compounds tax-free. When your grandchild retires, their withdrawals will be tax-free too.

You can contribute up to your grandchild’s earned income for the year or the annual IRA contribution limit, whichever is lower. In 2026, the Roth IRA contribution limit is $7,500, up from $7,000 in 2025.

Keep an eye on the new Child Savings Account

The OBBB authorized the creation of tax-advantaged accounts for children under age 18 called Trump Accounts, which are expected to become available through financial institutions on July 5, 2026. Parents, guardians and other individuals will be allowed to contribute up to $5,000 per year to the accounts; contributions are not tax-deductible. Employers will be allowed to contribute up to $2,500 per year, which counts against the $5,000 limit.

Children born between Jan. 1, 2025, and Dec. 31, 2028, will receive a one-time deposit of $1,000 from the U.S. Treasury. (The child must be a U.S. citizen and have a Social Security number.) “If you have a kid or grandkid who is eligible for the $1,000 deposit, it’s free birthday gift money,” says Mark Kantrowitz, author of How to Appeal for More College Financial Aid and former publisher of Saving for College, a website that provides information on financial aid and 529 plans.

Money in the account will grow tax-free, but earnings will be taxable when withdrawn, and withdrawals are only permitted without penalty when the child turns 18. The account will follow the rules of traditional IRAs, which levy a 10 percent penalty for withdrawals before age 59½, with certain exceptions, such as home buying or higher education expenses.