Building wealth is not just about accumulating money—it's about creating a legacy. As an investment advisor and someone who enjoys building things, I know that true wealth takes time. Not only does wealth grow over generations, but so do the financial habits that sustain it.
Many parents reach a financial inflection point once their children graduate college and begin their first jobs. They can finally breathe a little easier, feeling confident in their financial plan and comfortable with their probability of success—often in the 90% range. At this stage, the focus shifts from building personal wealth to ensuring that wealth and smart financial habits are passed down effectively.
One of the most impactful ways to help the next generation is by setting them up for long-term financial success in a tax-efficient way. If your child has started their career and is managing rent, bills, and the reality of financial independence, they may find it difficult to max out their retirement savings. However, as a parent, you have a unique opportunity to change the trajectory of their financial future.
The Power of a $38,000 Gift
Each year, parents can gift their child up to $38,000 ($19,000 from each parent in 2025) tax-free. This annual gift can be used strategically to fund tax-advantaged accounts that will compound for decades:
Max Out Their 401(k) or Roth 401(k) (if available) - Contributions to a Roth 401(k) grow tax-free, making it an excellent long-term investment.
Fund a Roth IRA - At the beginning of their career, it is likely their income would qualify, allowing them to take advantage of tax-free growth.
Contribute to an HSA (Health Savings Account) - If they have a high-deductible health plan, an HSA acts as a tax-advantaged investment vehicle that can be used for medical expenses or even as a retirement asset, compounding over time.
More Than Just Money—It's About Habits
This type of gifting is more than just a financial boost—it's a way to instill critical investing habits early on. By giving your child the ability to save and invest from the beginning of their career, you are reinforcing the importance of prioritizing long-term financial security. Over time, as their salary grows beyond their cost of living, they can take over these contributions themselves and continue the habit.
This approach doesn't have to be an annual commitment, but even a few years of gifting can create an incredible compounding effect. And if you don't have children, you can do this for a niece, nephew, or anyone you care about.
A Legacy That Extends Beyond Money
Generational wealth isn't just about passing down assets—it's about passing down financial wisdom and discipline. The lessons embedded in this type of gift can shape your child's financial mindset for decades, they not only preserve wealth but continue to build upon it for future generations.
By intentionally setting up the next generation for success, you create a ripple effect—one that could change the trajectory of their lives and the generations that follow.
Consult a CPA or tax professional to ensure your gifting strategy aligns with current tax laws and your financial goals.