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Want your kids to save? Let me be the nag

Parents know we shouldn’t nag our kids. If we want them to do something, we get someone else to be the heavy.

When it comes to helping your kids start saving for retirement, I’ll do the nagging for you.

Tell your kids I said they should open a Roth IRA, and save as much as they can ($5,500 is the current annual max). Here’s why:

  • If they don’t start saving early, affording retirement will be a lot harder, barring a big inheritance.
  • Developing the habit now will make them regular savers.
  • Unless they are making a lot of money, a Roth IRA is the tax-savvy option. As a reminder, you get no current tax break for contributing to a Roth. That contrasts with a regular IRA or a 401(k), where you defer tax on whatever you contribute. But a Roth IRA grows tax free forever, and when you take it out, there is no tax. By contrast, you will owe tax when you take money out of a regular retirement plan. So if someone is at a low tax rate now, they give up very little tax benefit now with a Roth IRA, and they avoid a big tax bill later, when they will probably be in a higher tax bracket.

If your kids are making a lot of money already, a Roth won’t make sense. If they have no salary at all, they can’t contribute. But for most kids in their 20s and even 30s, it is the smart choice.

That, and plenty of green vegetables.

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