My mom is giving $15K to my son. What about taxes?


Q. My mother wants to give $15,000 to my son, who is 16. What will that mean for taxes for both of them, and how should she give it? Should she put it in a 529 plan, an UTMA or just write a check?
— Unsure

A. That’s very generous of your mother.

There are some tax considerations, but deciding how to receive the money and where to put it really depends on the purpose of the money.

Here’s what you should know.

For 2022, a person can gift up to $16,000 a year to another person without any tax consequence, said Alexandra Makowski, a certified financial planner with CFS Investment Advisory Services in Totowa.

This is called the gift tax exemption.

“Because your son is under the age of 18, any account the money is deposited into will have to have a custodian — a supervising adult — on the account,” she said.

If the purpose is for your son to purchase a car when he turns 18 or use it for something else in the short term, one to three years, then keeping it in cash would be the safest option, she said. In that case, it may be best to have a check deposited in his bank account as long as he has the discipline not to spend it.

If it is better for him to not have access to the money, then you may want to deposit it into a Uniform Transfer to Minors Account, or UTMA.

“In an UTMA account, you can choose to invest the money in different investments, like a traditional investment account, but your son does not have access to any funds until he is 21,” Makowski said.

She said if the funds are specifically needed for college, then a 529 plan is your best option.

“This is a tax advantaged college savings account,” she said. “You do not have to pay capital gains tax on any investment growth realized when using the funds to pay for education expenses.”

Qualified education expenses includes $10,000 per year for K-12 school tuition, along with no expense limit on college expenses such as tuition, room and board, and books and supplies.

“The downside of putting money into a 529 is if you do not use the funds for a qualified distribution,” the earnings are taxed at ordinary income* tax rates plus you’d pay a 10% penalty, she said. The contribution portion of the withdrawal is not taxed as it is a return of basis.
* The original version of the story wrongly said the earnings are taxed at capital gains rates.

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This story was originally published on Aug. 2, 2022. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.