Early Gifts Can Kickstart Next-Gen Retirement Savings 

They say compound interest is the eighth wonder of the world. It’s certainly true that starting retirement savings early makes a big difference. 

It’s not always easy to get started, though. While employers generally must allow employees aged 21 or older with at least one year of service to participate in their 401(k) plan, money can be tight at that age, and it’s all too easy for student loan repayments and the general cost of living to take precedence over contributions. Enter the annual gift tax exclusion, currently set at $19,000 per person per recipient. If parents have the means of gifting even a few thousand dollars tax-free to their young-adult children, they can help their kids get on track for a secure retirement. 

“This is one area of planning that I have taken advantage of personally,” said Jane Ditelberg, chief tax strategist for Northern Trust. “I have a son who is early in his career, and he’s been working but hasn’t yet been eligible for his own 401(k) plan. Fortunately, we’re in the position to be able to gift him the money to make a Roth IRA contribution. We’re not in the tax bracket to be able to do a maximum gift, by any means, but we can afford $7,500.” 

The move mirrors a broader trend Ditelberg is seeing among Northern Trust clients. More clients are making gifts to the next generation earlier in life rather than routing everything through the estate, whether it’s to help with a down payment on a house, to eliminate toxic debt, or even better, to kickstart their retirement savings journey. 

Big Gifts, Little Gifts 

Current tax laws are historically generous when it comes to parents passing wealth tax-free to their children. By the numbers: 

• The annual gift tax exclusion for 2026 is $19,000 per recipient ($38,000 for married couples splitting gifts), allowing individuals to give this amount annually without reporting it or reducing their lifetime exemption. 
• The federal lifetime estate and gift tax exemption increased to $15 million per individual ($30 million per married couple) for 2026. 

Relatively few client couples are in the position to face estate taxes, but many can afford to make more modest gifts fit into their own retirement and legacy plans. “Several years of gifting in this way can have a surprising impact on the next gen’s retirement outlook,” Ditelberg said. “Money that starts compounding in your early 20s will grow quite substantially by the time you are in your mid- to late-60s. 

The Secret Retirement Weapon? The same logic applies to funding the newly created Trump accounts, Ditelberg noted. Parents can open these accounts through the IRS and get a $1,000 government contribution, then take advantage of a $5,000 yearly contribution limit.

“If a family with a newborn can afford to make contributions each year through age 18, that’s going to add up to a lot of money,” Ditelberg said. “They can eventually be converted to a Roth IRA. It’s a fantastic opportunity to get a head start.”