Child is on the way, invest for college and car fund options - opinions
Look at your options with a 529 program. If the money is used for education expenses: that currently includes tuition, room & board (even if living off campus), books, transportation; it grows tax free. Earnings are not subject to federal tax and generally not subject to   state tax when used for the qualified education expenses of the   designated beneficiary, such as tuition, fees, books, as well as room   and board. Contributions to a 529 plan, however, are not deductible. If it is a 529 associated with your state you can also save on state taxes. You can make contributions on a regular basis, or ad hoc. Accounts can even be setup by other relatives. I have used a 529 to fund two kids education. It takes care of most of your education expenses.  529 programs are available from most states, and even some of the big mutual fund companies. Many have the option of shifting the risk level of the investments to be more conservative as the kids hit high school.  Some states have an option to have you pay  a large sum when the child is small to buy semesters of college. The deal is worth considering if you know they will be going to a state school, the deal is less good if they will go out of state or to a private college.  The IRS does limit the maximum amount that you can contribute in a year an amount that exceeds the 14,000 annual gift limit: If in 2014, you contributed more than $14,000 to a Qualified Tuition   Plan (QTP) on behalf of any one person, you may elect to treat up to   $70,000 of the contribution for that person as if you had made it   ratably over a 5-year period. The election allows you to apply the   annual exclusion to a portion of the contribution in each of the 5   years, beginning in 2014. You can make this election for as many   separate people as you made QTP contributions One option at the end is to take any extra money at graduation and give it to the child so that it can be used for graduate school, or if the taxes and penalties are paid it can be used for that first car. It can even be rolled over to another relative.
"No one can really answer this for you.  It is a matter of personal preference and the details of your situation.  There are some really smart people on here, when placed in your exact situation, would do completely different things.  Personal finance is overall, personal. If it was me, I'd never borrow money in retirement.  If I had the cash, I'd use it to help fund the purchase.  If I didn't, I simply wouldn't.  For me wealth retention (in your case) is surprisingly more about behavior than math (even though I am a math guy).  You are simply creating a great deal of risk at a season in your life with a diminished ability to recover from negative events.  In my opinion you are inviting ""tales of woe"" to be part of your future if you borrow. Others would disagree with me.  They would point to the math and show how you would be much better off on borrowing instead of pulling out of investments provided a sufficient return on your nest egg.  They may even have a case as you might have to pay taxes on money pulled out magnifying the difference in net income on borrowing versus pulling out in a lump sum.  Here in the US, the money you pulled out would be taxed at the highest marginal rate.  To help with a down payment of 50K, you might have to pull out 66,500 to pay the taxes and have enough for the down payment. The third option is to not help with a down payment or to help them in a different way.  Perhaps giving them a few hundred per month for two years to help with their mortgage payment.  Maybe watch their kids some to reduce day care costs or help with home improvements so they can buy a lower price home.  Those are all viable options.  Perhaps the child is not ready to buy a home. Having said all that it really depends on your situation.  Say your sitting on 5 million in investments, your pensions is sufficient to have some disposable income, and they are asking for a relatively small amount.  Then pull the money out and don't be concerned.  You nest egg will quickly recover the money." No matter how the money was received/inherited by the parent, the receiver of the gift (in this case the child) will not owe any taxes. If it is below the annual gift exclusion the parent will not owe any taxes or need to fill out any forms. If it is above the annual exclusion then it will depend on how the money was transfer to the child/grand children. One check to the family would not be a good way for the parent to distribute the funds. A check to each person in the family unit (child, spouse, grand child) will allow a large amount to be transferred each year. Because the OP doesn't have a clear understanding of the source of the funds, and any taxes that might or might not have been paid at that time, and the parent isn't willing to discuss this information with the OP; the source of the funds is irrelevant to the answer. do I have to pay additional tax on the amount I receive from her? No. It's just money in an account somewhere with no tax shelter or string attached, to help maturing children (18-22ish) get a kick start in life whether they go to college or not.  Basically, the money can be used for anything (for you or them).  Or you can put it in a UGMA-type account where it's technically the child's funds and not yours (but check how college loans are calculated before dumping a bunch of money in those, I believe they are looked at differently, maybe as the first source of funds that gets tapped and could impact loan qualification). There are more than a few ideas here. Assuming you are in the U.S., here are a few approaches: First, DRIPs: Dividend Reinvestment Plans. DRIP Investing: How To Actually Invest Only A Hundred Dollars Per Month notes:  I have received many requests from readers that want to invest in   individual stocks, but only have the available funds to put aside $50   to $100 into a particular company. For these investors, keeping costs   to a minimum is absolutely crucial. I have often made allusions and   references to DRIP Investing, but I have never offered an explanation   as to how to logistically set up DRIP accounts. Today, I will attempt   to do that. A second option, Sharebuilder, is a broker that will allow for fractional shares. A third option are mutual funds. Though, these often will have minimums but may be waived in some cases if you sign up with an automatic investment plan.  List of mutual fund companies to research. Something else to consider here is what kind of account do you want to have?  There can be accounts for specific purposes like education, e.g. a college or university fund, or a retirement plan. 529 Plans exist for college savings that may be worth noting so be aware of which kinds of accounts may make sense for what you want here. Start a Roth IRA. Keep it in low risk, short term money market or CDs. At this stage, stocks may be premature. As you build up the account, up to $5000/year, at some point, you should start buying an index mutual fund, say one following the S&P.  When you are out of school and working for real money, save an emergency account outside the IRA and shift that Roth IRA to be fully invested.  My 13 year old has her emergency account, and her Roth IRA to deposit her baby sitting money. It's never too soon to start. FASFA financial aid formulas determine 'expected family contribution'.  For example my alma mater now has a 'list price of over $65k/year.  The average student today actually pays $42k/year after grants.  Students with rich parents pay more than that.  Students with poor parents pay less than that.  Lets say list prices for my kids colleges average $110k/year while they are in school.  If we 'only' make $200k then based on our income alone, EFC would start in the low $50ks per year.  If we have $1M saved in taxable accounts, 529s, rental properties, etc, then we also have to pay 5.64% of the value of those every year for the eight years my kids will be attending - an *extra* $56.4k/year every year for 8 years.  If that $1M is in assets that don't count such as retirement accounts and equity in primary residence, then it doesn't increase the price my kids are billed.  That's a pretty big incentive to put everything I can in home equity, Roth IRA, Spousal Roth IRA, traditional 401k, after-tax 401k, and HSA.  If I could afford to save more I'd switch from traditional to Roth 401k and pre-pay retirement taxes at a higher marginal rate rather than have the savings on the side subjected to the college wealth/income taxes which are effectively a much higher difference between the 25% (now) and 15% (later) federal tax brackets.  Profile and consensus formulas have slightly different percentages and count some home equity if you have an expensive house, but the general idea is the same. Saving for college you have a couple of options.  529 plans are probably the best bet for most people wanting to save for their kids college education. You can put a lot of money away ~$300k and you may get a state tax deduction. The downside is if you're kid doesn't go to college you may end up eating the 10% penalty. State specific prepaid tuition plans. The upside is you know roughly the return you are going to get on your money. The downside is your kid has to go to a state school in the state you prepaid or there are likely withdrawal penalties. For the most part these really aren't that great of a deal any more.  ESAs are also an option but they only allow you to contribute $2k/year, but you have more investment options than with the 529 plans. Traditional and ROTH IRA accounts can also be used to pay for higher education. I wouldn't recommend this route in general but if you maxed out your 401k and weren't using your IRA contribution limits you could put extra money here and get more or really different flexibility than you can with a 529 account. I doubt IRA's will ever be asked for on a FAFSA which might be helpful. Another option is to save the money in a regular brokerage account. You would have more flexibility, but lower returns after taxes. One advantage to this route is if you think your kid might be borderline for financial aid a year or two before he starts college you could move this money into another investment that doesn't matter for financial aid purposes. A few words of caution, make sure you save for retirement before saving for your kids college. He can always get loans to pay for school but no one is going to give you a loan to pay for your retirement. Also be cautious with the amount of money you give your adult child, studies have shown that the more money that parents give their adult children the less successful they are compared to their peers. Keep it simple: mutual funds (preferably index, low fee or ETF linked funds) do make a nice start for your little princess college fund.  You dont need a real fortune to offset the trading cost of an online broker but if your really going to take advantage of dollar cost averaging, you might want to invest into a trusted fund company.  Do your research, it is worth it. Ignore what the investment salesman is saying, he works for his wealth, not yours.  A good DIY strategy, either joint with your own retirement account agregate or on a low cost index fund will make wonders.  Keep in mind to be resilient: you will cash out when the princess will be in college in 20 yerars. Make sure to make proper time horizon investment and allocation.  Cheers, All the best. Feel free to edit