Dave Ramsey says “tell her to hold on to that right now” when a concerned son asks about his mother’s terrible decision.

Sometimes, bad financial decisions can come from the best intentions. Someone called into the Dave Ramsey show saying that his mother wants to give him $20,000. This gift would help the caller immensely, as he only has $7k in student loan debt and $5k in car debt. 

While a $20,000 gift sounds like a dream come true, Dave asks questions during the call that reveal it isn’t as good as it sounds. Ultimately, the mother will put herself in a vulnerable financial situation if she gives away $20,000 from her IRA.

The Caller Has Been Focused on Long-Term Financial Goals

The caller started by mentioning that he has been following Dave Ramsey’s snowball method for several years, getting down to just $12k in remaining debt. While the extra $20,000 can accelerate him out of debt sooner, it seems like the caller is already on the path to a debt-free lifestyle.

That’s important to keep in mind when considering the $20,000. It’s good that the caller has taken more control over his finances and is making tangible progress. These results should make the caller feel more confident about his recent decisions and where he’s heading. While the $20,000 is nice, it isn’t necessary for his finances.

The Mother Doesn’t Have Enough Saved Up

The financial impact of the gift became more apparent as Dave and the caller talked more about the mother’s financialsituation. She is a 71-year-old retiree who collects $3,000 per month. She also has $20,000 in an IRA and $80,000 in a 401(k). While her house is fully paid off, that’s all she has.

Dave initially mentioned that she could give $15,000 to the son in one year without triggering gift taxes. However, discussions on this strategy went out the window when Dave got a better understanding of the mother’s finances.

If you use the 4% rule, a $100,000 net worth between the IRA and the 401(k) only yields $4,000 per year, which comes to $333/mo. Combine that with the money she receives each month, and it comes to $3,333 per month. That’s not a lot to live on, and Dave mentions that she is broke in this scenario. He said that the $20,000 gift is a completely different story if she had $800,000 in her 401(k), but that is simply not the case.

Hold On To the Money

Dave’s advice for the mother is to hold on to her money. While the gift is a great gesture, it doesn’t make financial sense. The mother can find herself vulnerable if she only has $80,000 to her name on top of receiving $3,000 per month. While she technically can go back to work, it’s harder for 71-year-olds to rejoin the workforce. Each year she gets older, it tends to become more difficult.

If the mother provides the son with a $20,000 gift, there is a strong likelihood that the son has to provide her with financial assistance during her later years. If the mother has anything left when she passes away, she can give her funds to the son as an inheritance. However, it doesn’t make sense in this financial context to give away $20,000.