Ask the Adviser: How Can I Help My Children Achieve Financial Independence Without Spoiling Them?

“Don’t save what is left after spending; spend what is left after saving.”– Warren Buffett 

One of the most important financial lessons to teach our children and grand­children is the impor­tance of saving and investing. We all start out working for money. The goal should be to set aside a portion of our regular earnings and invest it. Eventually, we could have enough money working for us so that we no longer need to work for money. We will have achieved financial independence! 

Parents and grand­parents often ask me how they can help their children achieve financial indepen­dence without spoiling them. They are in a financial position to make gifts but are unsure whether such gifts would help or harm them. Here are two smart ways to gift that can offer some immediate benefits and help them on their path to financial independence. 

Make a Roth IRA Contribution 

Put your children and/or grand­children on the path to a secure retirement by making a Roth IRA contri­bution for them as soon as they have earned income. Any child or grand­child who receives a W2 can make a Roth contri­bution based on this income, regardless of their age. Funding a Roth IRA, or any retirement account for that matter, is usually not a priority for a teenager’s part-time income. This is an oppor­tunity for parents or grand­parents to start saving for the child while they are young. Small amounts invested can go a long way when you are young and have years for the money to compound. 

The maximum contri­bution in 2026 is $7,500 or 100% of earned income, whichever is less, for those under 50. If your child is over 50, you can contribute an additional $1,100. You could make a Roth contri­bution based on their earnings from a summer job. Total up their W‑2 state­ments at tax time and make the Roth contri­bution for the total amount. 

Let’s assume you make a $7,500 contri­bution to a Roth for your child every year starting at age 16 until they are 25. If no additional contri­bu­tions are made and the account grows at an average annual rate of 7%, their Roth IRA would grow to over $1,000,000 by age 60. Not bad for a $75,000 investment! 

The earnings will be tax-free when withdrawn, providing all other require­ments are met. Adult children living on their own may also qualify for the Retirement Savings Contri­bution Credit, known as the Saver’s Credit, based on your gift to their Roth IRA. This credit may allow them to get a tax credit for up to half of what you contribute to their Roth IRA. Up to $2,000 of your contri­bution is eligible for the credit. They cannot be claimed as a dependent on anyone else’s tax return, and their income must be within specific guide­lines to qualify. 

Source: https://​www​.fidelity​.com 

Fund a Health Savings Account (HSA) 

An HSA is a type of savings account you can fund on a pre-tax basis and use to pay for qualified medical expenses. These accounts are only available to people who are enrolled in a High-Deductible Health Plan (HDHP) and have limits on the amount of money you can contribute to them. 

 2026 HSA Contri­bution Limits: 

• Individuals: $4,400 

• Families:  $8,750 

• $1,000 catch-up if age 55 or older 

An additional amount can be contributed for children under 26 who are on their parents’ HDHP family plan but are NOT claimed as a dependent.  In this instance, the child can also contribute up to the full family amount of $8,750, regardless of what their parents have contributed to their HSA. 

Health Savings Accounts (HSAs) are designed to help individuals save money specif­i­cally for healthcare expenses not covered by insurance. Many people use their HSAs to pay for copay­ments, deductibles, and other out-of-pocket costs. An HSA must be linked to a High-Deductible Health Plan (HDHP), which requires policy­holders to pay a larger deductible before insurance coverage fully activates. The HSA helps cover these initial expenses, while the HDHP provides broader coverage for signif­icant health services, such as hospital stays, once the deductible is met. 

Advantages of Gifting to an HSA 

An HSA has some important advan­tages over other ways of saving for healthcare costs: 

• Contri­bu­tions are pre-tax: Money deposited into an HAS is contributed on a pre-tax basis, like a tradi­tional IRA or a 401(k)-retirement plan. This reduces your taxable income, allowing your savings to grow tax-free until you need them for qualified medical expenses. 

• Funds roll over year to year: Unlike some other healthcare accounts, unused HAS contri­bu­tions automat­i­cally carry over each year.  This allows account holders to accumulate savings for future healthcare needs without fear of losing unspent funds. 

• Investment choices: HSA balances can be invested in mutual funds and other financial instru­ments, much like a 401(k). These investment options can poten­tially grow your savings faster than a tradi­tional savings account. 

• Tax-free withdrawals: Funds withdrawn from an HSA for qualified medical expenses are tax-free. Neither your contri­bu­tions nor any investment earnings are taxed when the funds are used for qualified medical expenses. This makes an HSA an extremely efficient way to save money for healthcare expenses if you have an HDHP. 

A good way to help a child or grand­child who has access to an HSA through their employer is to contribute the maximum annual amount to their account. The contri­bution will help them save taxes each year on the amount invested. More impor­tantly, the growth in the account can be used to cover future medical expenses tax-free. 

Final Thoughts on Gifting Strategies for Financial Independence 

Helping your children or grand­children achieve financial indepen­dence goes beyond simply giving them money. It is about teaching smart financial habits and using inten­tional strategies that encourage long-term respon­si­bility and growth. By funding vehicles such as a Roth IRA or Health Savings Account, you can create valuable, tax-advantaged oppor­tu­nities while reinforcing the value of saving, investing, and planning. 

For additional ways to help your children or grand­children achieve financial indepen­dence, consider these other gifting strategies. These approaches can complement your overall retirement planning and legacy planning goals while helping you transfer wealth efficiently and respon­sibly. When guided by a trusted retirement financial planner, a well-designed gifting strategy can support the next generation’s financial stability without under­mining their independence. 

This article was origi­nally published on April 18, 2019, and was updated for accuracy and relevance on the date above.