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After commencement, time to commence saving

If you have a child about to graduate college or with an advanced degree, congratulations! Earning a bachelor’s, master’s or doctorate is a tremendous accomplishment. You should be proud.

If your new grad is entering the workforce, there will be an adjustment. You can help your newly minted graduate in multiple ways. One is to help them save.

Saving may not seem an urgent priority. Your graduate has decades until retirement, and at least 5-10 years before buying a house. There are more pressing issues – for starters, moving and finding an apartment.

But saving, especially for retirement, is in that category of important but not urgent … until it is urgent. By that time, it’s often too late.

Parents, if you have the means, here are three ways you can help:

  1. Match some of what they put into savings. It’s like a company match in a 401(k), and a great motivator.
  2. Help them pay for a Roth IRA contribution. Roth IRAs are ideal for tax payers in low brackets and for young people, who have decades for the investment to grow tax-free. Roth IRA contributions receive no up-front tax deduction, but the money is never taxed again, assuming you hold it until age 59-1/2 and for 5 years. Your child may not have $5,500 to spare — the annual contribution limit. That’s where you come in, parents.
  3. Give your children appreciated securities. You may be staring at a large tax bill when you sell. If you give stock to your kids, they can hold it for decades or sell it when they are at a low tax bracket. Parents, you can combine options 1 and 3, using your appreciated securities to match your child’s annual savings.

For more detail about these recommendations, please see our brief white paper here.

Two final warnings:

  • Before your child saves into any retirement account, they should have an “emergency fund” of cash to access when between jobs.
  • The #1 financial priority parents have is to themselves. If you are not sure you can afford retirement, be careful about what you give to your children.

But if you have the financial resources, you have a great opportunity to guide your kids toward a strong financial future.

PS – encourage your graduate to sign up for this newsletter. It can be the source of continued, important conversations.

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