Families can use several exclusions for gifts to children

Tuition and medical payments bypass gift limits

The gift rules come as Federal Reserve data cited by The Wall Street Journal show households headed by people 70 or older holding nearly five times as much wealth as households headed by people under 40. From 1989 through 2022, households headed by people ages 65 to 74 added $231,000 to their median net worth, compared with $20,000 for households headed by people under 35. The article attributed the gap to older Americans’ decades of gains in stocks and real estate and to younger people dealing with rentals, child-care costs and student debt.

Under the 2026 rules described by the newspaper, an individual can give up to $19,000 each year to each child, grandchild and child’s spouse generally without filing a gift-tax return. Giving one child $19,000 annually for 30 years would transfer $570,000. A married couple could each give the child the same amount, reaching $38,000 per year and $1.14 million over 30 years before considering gifts to other relatives.

Gifts above the annual exclusion generally require the donor to file Form 709 with the Internal Revenue Service, but the excess does not necessarily create a tax bill. Instead, the excess counts against the donor’s lifetime gift-and-estate-tax exemption, which is $15 million per person in 2026 and could reach $30 million for a married couple. In the article’s example, a $100,000 gift to a daughter would use $19,000 of the annual exclusion and $81,000 of the lifetime exemption, with no gift tax generally due.

Disclosure on Form 709 can also limit later scrutiny. Assuming no fraud, the IRS generally has three years to challenge a gift that was adequately disclosed; without a return, the clock does not begin. The form can also document for a mortgage lender that a down payment was a gift rather than a loan.

Qualifying tuition payments made directly to an eligible school and qualifying medical expenses paid directly to a provider are entirely excluded from gift tax, with no dollar cap. Those payments do not count against either the $19,000 annual exclusion or the lifetime exemption. The education exclusion applies only to tuition, not room, board, books or supplies.

A 529 education-savings plan can receive five years of annual exclusions at once. An individual can contribute up to $95,000 per beneficiary in 2026, while a married couple can contribute up to $190,000. The donor must file Form 709 to make the election, and the contribution generally uses the beneficiary’s annual exclusion for those five years.

Under the Secure 2.0 law, up to $35,000 can be rolled over from a 529 plan into the beneficiary’s Roth IRA after the beneficiary finishes school. The rollover counts toward the beneficiary’s $7,500 Roth IRA contribution limit for 2026. Only money held in the account for at least five years is eligible, the account must have been open for at least 15 years, and the beneficiary must have earned income during the rollover year at least equal to the rollover amount.

The tax treatment of appreciated assets depends partly on when they are transferred. If a donor gives appreciated stock during life, the recipient generally takes the donor’s cost basis and could owe substantial capital-gains tax after selling. If the stock is inherited, the basis generally resets to its market value at death, potentially eliminating tax on appreciation that occurred during the donor’s lifetime. The Wall Street Journal said that advantage can be overstated when children or grandchildren have little taxable income and could sell a gift in a low or zero capital-gains tax bracket.

Trump Accounts went live on July 4 and were still being sorted out by the IRS, according to the article. Money in the accounts grows tax-deferred, parents can contribute up to $5,000 of after-tax money per year for each child under 18, and employers can contribute up to $2,500. Grandparents can also contribute, but the $5,000 annual limit is shared across all contributors.

Because the child cannot access a Trump Account until age 18, an ordinary contribution generally would not qualify for the $19,000 annual gift exclusion and ordinarily would require Form 709. Lawrence Pon, a certified financial planner in Redwood City, California, said the IRS “doesn’t want to be deluged with those forms” as it develops a safe harbor intended to relieve most taxpayers of that requirement. The article also cautioned that some 18-year-olds may not responsibly handle control of the accounts and that withdrawals are taxed at ordinary income-tax rates; a 529 plan can remain under a parent’s control.

The tax considerations do not answer whether a household can afford a gift. A gift is irrevocable, while the donor’s retirement expenses are not. If Medicaid long-term care is a near-term consideration, gifts made less than five years before applying may lead Medicaid to impose a penalty period. Pon said people who are unsure about the paperwork should probably seek professional help.