EP Wealth financial planner Emily Sorensen, MS, CFP^®, addresses a common question related to next generation gifting: how to support multiple family members in a way that feels equitable and tax-efficient, whether you're their parent, grandparent, aunt, or uncle.

Ask a Financial Planner: How Can I Give Fairly to the Children in My Life?

Q: My wife and I want to help fund education for two grandchildren and a nephew who are at very different stages: one in high school, one in college, and one already in the workforce. How can we support them equitably given the different stages each one is in? Because we are retired, we are also seeking opportunities to reduce our tax bills, and we don’t want to create a tax burden for our family members with these gifts. We’re feeling paralyzed by these various needs and not sure where to start.

A: First and foremost, what a generous gesture, and one we hear a lot of our clients wanting to make. Rest assured, you are not alone in feeling overwhelmed by everything that goes into it; the intent is simple, but the execution can feel complicated. I love untangling puzzles like this one so you can get back to what actually matters to you: making an impact in the lives of the loved ones of your next generation.

Helping fund a young person's education, whether they're your child, grandchild, niece, or nephew, can be one of the most meaningful ways to give while living. These strategies work the same way regardless of how you’re related since tax rules depend on the gift itself. And unlike a bequest, this kind of giving comes with a front-row seat: you are there for the acceptance letter, the cap and gown, the first day of the new job.

Let’s start with fairness. The key is to define what “fair” means to you before you begin. Fair does not always mean identical timing or gift vehicle. In many families, the clearest approach is to set an equal lifetime amount for each person, then customize how it’s doled out to meet the recipient’s goals. If you set $100,000 per child, for example, everyone receives the level of support, even if one gets it over several years and another as a lump sum.

Talk early about your intentions, too. Giving like this reflects what your family values, and early clarity prevents misunderstandings later, especially if one child takes a traditional path and another does not. For example, you can tie the gift to maintaining a certain GPA or declaring a major within a set time frame, parameters that make the investment about passing along values, not just dollars.

For the high school (or younger) child

Consider: Contributing to a 529 plan

For a younger family member, a 529 savings plan is often the first tool to consider. These accounts allow contributions to grow tax-free, and withdrawals are federally tax-free when used for qualified education expenses. The earlier you contribute, the more time the money has to compound, and the longer you get to watch it grow alongside them.

As the account owner, you keep control over the funds and when distributions happen, and contributions help shrink your taxable estate. Amounts above the annual gift-tax exclusion generally just require filing a gift-tax return, and married couples can “superfund” five years’ worth of exclusion gifts at once for a sizable upfront start.

Another benefit: 529 plans owned by someone other than a parent (such as a grandparent, aunt or uncle) no longer carry the financial-aid sting they once did. Old FAFSA (Free Application for Federal Student Aid) rules counted withdrawals as the student's own income, shrinking aid offers by up to half the amount withdrawn. However, since the 2024-25 cycle, the form no longer asks about accounts owned by others.

For the college (or postgraduate) child

Consider: Making tuition payments directly to the educational institution

For someone already enrolled in college or graduate school, a 529 may offer less benefit because there is less time for tax-free growth. In that case, paying tuition directly to the school can be a powerful alternative.

Direct tuition payments are not treated as taxable gifts, and there is no dollar limit, which makes them an efficient way for larger estates to give meaningfully while preserving lifetime exemption amounts for other assets.

The limitation: direct payments cover tuition only, not room and board, books, or technology, so some families pair them with a smaller 529 or annual cash gifts. It is also a natural place to build in shared commitment, like an agreement that the student covers their own living costs or checks in with the family's Advisor once a year.

For the path outside a four-year college program

Consider: Funding their Roth IRA, matching what they save, or backing their next step

Not every career path runs through a campus. Whether someone in your next generation chose trade school, military service, or went straight into the workforce, there are still meaningful ways to invest in their growth. And if they're working and considering a graduate degree, point them to employer-sponsored education benefits first; many companies will cover part of the cost before your dollars need to.

Once someone has earned income, a Roth IRA becomes an option: gift them cash, and they can contribute up to what they earned that year. The money grows tax-free, distributions in retirement are tax-free, and a modest contribution in someone's early twenties has decades to compound.

A Roth is far from the only route at this stage, though. Help with a down payment, seed money for a business, or covering a professional certification can matter just as much. Some families give these gifts outright, no strings attached. Others build in a shared commitment: matching every dollar the recipient saves toward the down payment, matching what they put into their own Roth or 401(k), or asking them to build a financial plan with an Advisor first. Structures like those turn a check into a habit, and they tend to help reinforce the values behind the gift.

If their path does not need a degree at all, a cash gift or a trust can back a trade, a business, or professional training just as meaningfully as a 529 backs college. And an unneeded 529 is more flexible than most people assume: scholarship winners can withdraw up to the scholarship amount without the usual 10 percent penalty (earnings are taxed as income), and funds from a 529 open at least 15 years (up to a $35,000 lifetime maximum) can be moved into the beneficiary's Roth IRA over time, turning leftover college money into a retirement head start.

What this giving can (and can’t) do for your own taxes

Since you asked about keeping your own taxable income low, an honest note: gifts to family members do not reduce it. An IRA required minimum distribution (RMD) is taxed to you whether you spend it, save it, or give it away, and the qualified charitable distribution (QCD) only works for money sent directly from an IRA to charity, never to a grandchild or a nephew. If charitable giving is part of your plan too, that route can keep some, or all, of your RMD off your return entirely.

Where family giving does help is on the estate side. Direct tuition payments and annual-exclusion gifts move money out of your taxable estate without touching your lifetime exemption, and more than 30 states offer an income-tax deduction or credit for 529 contributions, which can soften the bite on the RMD dollars you redirect there.

Before making large gifts, work with your Wealth Advisor and tax advisor to coordinate contribution amounts, gift-tax reporting, estate-planning considerations, and your own retirement income needs.

A Personal Note on Giving While Living

One final thought from my own experience: families rarely say this part out loud, but underneath the tax questions there is almost always a second hope, that the giving will carry values, knowledge, and some hard-won wisdom along with the money. The happiest outcomes I see are the ones designed around exactly that, where a gift arrives with a conversation, a plan built together, or a milestone shared in person. Those are the moments that make giving while living worth it.

And don’t underestimate your own side of this! Many families who choose to give while living find that one of the most meaningful aspects is being able to share in life's milestones because they were in the room for the graduation, the first commission check, the ribbon cutting. A bequest can pay for those moments; it just never lets you see them.

You may not be able to control the path each person in your family chooses. But with thoughtful planning, you can provide support that is both fair and meaningful, and get to see the impact of those gifts while you are here to enjoy it.

This article is provided for educational purposes only and should not be construed as tax, legal, or investment advice. The question and examples in this article are hypothetical and provided for illustrative purposes only. Tax laws and regulations are subject to change. EP Wealth Advisors does not provide tax or legal advice. Please consult your tax and legal professionals regarding your specific situation.