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Homeownership is an important rite of passage and wealth builder for young adults. According to Northwest Mutual, 74% of parents with children at home say they would consider or have begun planning to help their children buy a home. Planning and Progress Study 2026.
This gesture can have a significant impact on your retirement dollars because you’re not only missing out on the amount you give to your children — you also miss out on compound returns and may owe taxes on your gift, too.
The cost of lost growth may exceed the gift.
Compounding has a rapid impact on growth. The longer the gift amount is invested, the higher the opportunity cost of helping your children buy a home.
Let’s say you want to give your child $25,000 that you otherwise would invest in a lump sum. Assuming a nominal 6% return, Here’s how much you could lose.
| Number of years invested | lost growth | total cost |
| 10 | $19,771 | $44,771 |
| 15 | $34,914 | $59,914 |
| 20 | $55,178 | $80,178 |
Withdrawal of gift funds from investment accounts may have tax consequences
You may have to pay taxes on gift funds withdrawn from investment accounts.
If you use a taxable brokerage account to sell assets you’ve held for more than a year, you’ll have to pay capital gains taxes if your taxable income exceeds $48,350 ($64,750 for joint filers). ir. The capital gains tax rate for most people is 15%, but those whose income exceeds certain limits have to pay more.
Assets held for one year or less are considered short-term investments. The profit on their sale is taxed at your normal rate tax rate.
You’ll also have to pay income taxes on withdrawals from regular individual retirement accounts and 401(k)s — plus a 10% penalty if you’re under age 59.5. ir.
Large gifts may be required to be reported to the IRS under gift tax rules. Exclusion is for 2026 $19,000and lifelong exclusion $15 millionAccording to the IRS.
The Surprising Cost of Gifting Extra Cash
A study by Veterans UnitedReleased April 9, it showed that of parents helping their children buy or plan a home, 65% were using funds from checking and cash accounts. The costs associated with these gifts are less obvious but still important to consider.
For example, those funds can keep you free from debt if you have emergency expenses, and protect you from selling investments at a loss during a down market.
Questions to Consider Before Helping Your Children Buy a Home
Before offering help, ask yourself:
- Are they ready for homeownership?
- What strategies can I use to reduce taxes?
- What are the best accounts to attract? Reduce the impact on retirement savings?
- How can I help other than making a direct cash gift?
A financial advisor can work with you on these questions and help you determine the long-term impact on your retirement income.