Many of our clients now have adult children, and are naturally relieved that their days in the “parenting trenches” are now a distant memory. But that doesn’t mean you stop imparting wisdom to your kids. In fact, now is the time to pass along your wise financial planning advice.
With that idea in mind, make sure you’ve covered these bases with your adult children; they’ll thank you someday!
Reduce income tax liability and plan for retirement at the same time. Since contributions to a traditional 401(k) or IRA are tax-deductible, they will lower overall taxable income for the year (up to a certain limit). Therefore, making these contributions can lower the overall tax burden. Your kids need to know that planning for retirement also carries important benefits now.
Establish a form of non-taxable income in retirement, by utilizing a Roth account. If they choose to contribute to a Roth IRA or 401(k), your kids can set themselves up to enjoy a non-taxable stream of income in retirement. They won’t enjoy the tax benefits now, since contributions are made on an after-tax basis, but this can be a great choice for those who don’t want to be burdened by excessive taxes in retirement.
A health savings account benefits them now, and potentially in the future. Many younger people opt for high-deductible, low-premium health insurance plans these days. That can be a wise budgeting choice, but the out-of-pocket deductible can feel overwhelming. A health savings account will allow your adult children to set aside pre-tax dollars (and reduce taxable income) to be used for out-of-pocket healthcare expenses. If they don’t use all of the money in their account each year, it is rolled over indefinitely – even into retirement.
And yes, they do need insurance! Some young adults are tempted to go without important forms of insurance, such as disability and life insurance. Remind them that it only takes a moment for their lives, or the lives of their spouse and children, to be forever altered. Insurance can provide the necessary financial cushion during a tragic event.
They need a financial advisor too. Financial advisors aren’t just for people who are about to retire! In fact, financial health is a lifelong endeavor. Encourage your adult children to meet regularly with a financial advisor, who can help them get started on the long road to retirement and financial stability.