Your days of PTO meetings, ballet recitals, and helping with science fair projects might be over, but does that mean you’re “done” raising your children, even if they’re in college or already graduated? Well, as we all know, you are never really finished sharing your knowledge and experience with your kids. The subject matter just changes as you both get older.
Once your kids leave home and get their first “grown up” jobs, it’s time to share your financial planning knowledge. We’ve put together some talking points for you, so that you can help your kids build a secure future for themselves.
A traditional retirement account helps lower your income tax burden. Contributions to a traditional IRA or 401(k) are made on a pre-tax basis, lowering taxable income for the year while helping you save for retirement.
A Roth account brings tax benefits in retirement. Contributions to a Roth IRA or 401(k) are made on an after-tax basis. They won’t lower your income tax liability now, but withdrawals from the account in retirement won’t be taxed. It’s often a good idea to stash money in both traditional and Roth accounts. As young people plan for retirement, they might find that they don’t need the tax breaks offered by a traditional account, so now might be a good time to opt for a Roth account. As their salaries grow, it might become time to begin funding a traditional account.
A Health Savings Account can be a valuable planning tool. Young people are more likely to opt for low-premium, high-deductible health insurance plans. In this case, they might be eligible to utilize a Health Savings Account, which allows them to stash pre-tax money to be used for qualifying healthcare expenses later. If the money isn’t used, it can be rolled from one year to the next, all the way into retirement. Therefore, an HSA can also function as a way to play for healthcare expenses in retirement.
Everyone needs certain types of insurance. Young people are notorious for thinking nothing bad can happen to them. In reality, everyone needs a few basic types of insurance. Disability insurance can prevent financial disaster in the event of a sudden, unexpected accident or illness. Life insurance can protect young families. Both of these types of insurance are necessary for young people, but are luckily quite affordable in most cases.
Seek professional guidance. As hard as it can be to picture retirement when you’re in your twenties, young people need retirement planning advice, too. Remind your kids that professional guidance can prevent many missteps and promote a healthier financial life.