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You’ve probably seen quite a few articles and news stories about teaching kids about money and how to raise financially savvy kids (or perhaps how to get your children to move out of the basement!) We recently met with a couple whose daughter is financially responsible and has left the nest. Now they want to know how they can continue to help their daughter without dissuading her incentive to work. She has an emergency fund, she’s saving in her 401(k), and she’s making her student loan and rent payments on time. What else could the couple do?
Here’s what we came up with:
Help Fund a Roth IRA and/or Reimburse 401(k) Contributions
Oftentimes in our 20s and 30s, there are so many large expenses (grad school, weddings, a down payment on a home, kids, etc.) that it can be difficult to fund or max out a retirement plan. However, the benefit of saving and investing early pays off in the long run due to compound interest. Consider gifting money to your adult child for her to put towards a Roth IRA, or to help afford a retirement plan contribution. If you want her to have skin in the game, match whatever she puts into savings. As an example, if she contributes $1,000 to a Roth IRA, add $1,000 too. Remember, those under 50 can only put $5,500 into a Roth IRA or $18,000 into a retirement plan in 2016, so don’t contribute too much!
Make Contributions to a 529 College Savings Plan for your Grandkids
This can be a win-win-win solution. By opening and contributing to a 529 College Savings Plan, you not only help your adult child (and your grandchild) with future college expenses, but in many states you can also get a personal state tax deduction for your contribution. On top of that, all growth in the 529 Plan can grow and be distributed tax-free assuming the funds are used for qualified education expenses. Also, the 529 Plan beneficiary can typically be changed to another family member should your grandchild not need all or part of the funds.
Give the Gift of an Annual Check-up with a Financial Planner
Rather than giving your adult child one more Christmas sweater she doesn’t need or matching stemware for her wedding she won’t use, pay for a visit to a financial planner. A comprehensive financial planner can advise her on how much and where to save, make sure she’s properly insured, and double check to make sure she’s taking all the tax deductions for which she’s eligible. They can also serve as bad cop (instead of you) if your child wants to make a foolish financial decision. The good news is that many financial planners, Glassman Wealth included, consider the parents and children of their clients to be clients too.
Open your Network (Business and Personal)
You likely have decades’ worth of business and personal contacts across multiple professions and industries. Your adult child may only be in their first or second job and have a limited network. Set up a few lunches with people you know in your child’s profession to help her, not only expand her own network, but also to give her an opportunity to ask questions. From there, encourage your child to ask for other recommendations of who to contact. One introduction could lead to a new job or a new skill set, with a promotion attached somewhere down the road.
Match Charitable Contributions
Just like saving for retirement, it can be difficult for an adult child to find the extra funds to give to a charity. If you’ve instilled philanthropic values, consider matching any donations your child gives to their favorite charities. If your child still needs an extra push, offer to donate directly to the charity of her choice up to the amount she’s put towards her debt or saved into a retirement plan. This helps you too, as you could be eligible for a tax deduction for your charitable contribution!
Smart planning can go a long way in helping your kids become (and stay) financially responsible. These strategies may help them make a bigger impact, further their career goals, build a legacy, and put your family in a better position for the future. For more on raising money-smart kids, see our featured page.