Nov 16, 2025
Many parents provide financial support to their adult children. In fact, a report from Savings.com revealed that half of all parents with adult children still provide regular financial help — $1,474 per month, on average (1).
While it's understandable for parents to want to give their kids a leg up on their future financial security, it's also critical that they don't jeopardize their own.
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For example, let’s imagine Helen. At 70 years old, she is a retired widow and withdraws $2,500 per month from her 401(k) to supplement her Social Security income. Helen has $1 million in this fund and is thinking of withdrawing $60,000 to pay off her adult daughter Bella's student loans.
Here’s what she needs to know about the impact this gift could have on her own finances.
Does taking money out of a 401(k) affect retirement security?
The most important thing that Helen needs to understand is how much helping Bella would cost her.
This cost is larger than the $60,000 withdrawal because 401(k) distributions are taxable and withdrawals trigger a taxable event. The distributions would also be counted as income, so that may result in Helen moving up to a higher tax bracket and potentially becoming subject to higher taxes on her Social Security.
Helen would also lose all of the future returns that the $60,000 would have earned if she'd left the sum invested. For example, if she left the money invested for 15 years (even at a relatively low rate of 5% returns), she would be losing out on $126,822.24. This is why most experts recommend sticking to the 4% rule and withdrawing no more than 4% of your retirement funds each year, so that your baseline savings can grow as much as possible for as long as possible.
Taking out $60,000 to pay back Bella's student loans would be well above Helen's recommended withdrawal rate if she were following the 4% rule. Assuming she took out an additional 20% to cover the taxes on the withdrawal, it would reduce her 401(k) balance from $1 million to $928,000, because now the withdrawal sum would need to be $72,000 (2).
The $928,000 would allow her to withdraw $37,120 per year, or around $3,093 per month. While that is still more than the $2,500 per month that she needs right now, she will have less of a cushion for the future in case of critical illness or other emergencies or as the cost of living rises.
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Putting your retirement at risk to help your kids
While it is understandable for parents to want to help out their children, they should remember that young people have their entire lives to build financial security.
People who are already retired no longer have that opportunity. When their nest egg is gone, they will find themselves in a tough financial situation (and sometimes, dependent on their children). While Helen may assume her daughter would step up to help in the future, there is no guarantee that Bella could or would offer this assistance.
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There's also a chance the gift could create conflict between mother and daughter. If Helen gives Bella this money, will she feel entitled to comment on Bella’s spending habits? Will she be annoyed if Bella isn't financially responsible? Conversely, if Bella starts a business and becomes very successful, Helen may expect Bella to pay back the full sum — even if that wasn’t discussed before.
Therefore, if Helen decides to follow through with helping Bella, she should be very strategic with her withdrawal and timing and be clear on whether she's offering the money as a loan or a gift. They should discuss it in detail, including what will happen if Helen needs help in the future.
Helen could also opt to take a different approach. She could up her withdrawals to the safe 4% rate, bringing in an extra $833 per month over the $2,500 she needs. This would allow her to give Bella some money each month to help pay the debt and it would provide more flexibility in case Helen faced financial hardship later on. It would also save Helen (and her daughter) from a big tax hit.
Ultimately, parents who are financially supporting their adult children need to keep her own security at the forefront — to put their own oxygen mask on first, so-to-speak.
If you find yourself in a similar situation and you do offer help, have a detailed conversation with your children about what you can afford and whether your help will come with any future financial conditions. Put these down in writing, so the expectations are clear and so there is documentation for future reference.
This can protect both you and your daughter by making clear exactly what each person's rights and obligations are to each other over the long run.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
