How much to help kids get started

[KRABE]

My kids are young, but we have some savings opportunities through being self employed and me making the kids work that legally allow us to be able to do things like contribute to their Roth etc.

How much do you work to setup kids for future retirement success.

My wife and I have decided that we are going to work until the last one graduates high school, which gives us about 15 years. 15 more years of work and saving as we have been puts us into the extremely comfortable situation at the age of 50 by our estimates and calculations.

How much do you contribute to 529 plans, kids roth's, custodial accounts etc for your kids along the way? Does the Secure 2.0 act change that?

If we max out the state tax deductible contributions to 529s we are looking at giving them $21,600 this year between the three of them.

We have already done for 2022 tax year:
1. 2500 worth of w-2 wages to roth plus will be doing 625 to her SEPIRA for the oldest,
2. 1500 worth of w-2 wages to roth plus 375 to her sepIRA for the middle child
3. nothing for the youngest and his help does not justify a wage at this point.

Just struggling with making transfers that are obviously advantageous to them now vs potentially giving up the cash for opportunities in pursuit of trying to make our pot bigger to leave to them when we pass.

 

[HawkeyeNFO]

3 kids, max tax break from my state is $4k deduction per kid, so that's what I put into the 529. That lowers the taxable income by $12k per year as far as state taxes. I need to start Roth IRAs for them.

 

[RE2Boys]

For my sons, I started Roth IRAs as soon as they worked for W2 income. I matched their contributions dollar for dollar (of course, the max total per year was $6000.

529 plans, I contributed through the years such that they had about 50% of the projected cost of attendance at a state university. Too many unknowns to go further, such has what school they would attend, would they live in the dorms or at home, what scholarships would they be eligible for, etc.

The older son preferred to live at home and go to the branch campus of a major university (Penn State). The younger one lived away but had significant scholarships. We had the problem of excess funds in the 529 at the end.

Don't forget to file income tax returns and W2s for your older kids to show the income that justifies the IRA contributions.

Also gave each a college graduation gift of $15,000 as startup money for rent and car expenses in their first job so they would not have cash flow issues the first year out of school. Up until that time, I covered car insurance and maintenance, but now they need to make their own way in the world. But I still cover half the Roth IRA contributions.

 

[rodi]

My kids are in college now. My state does not offer any tax advantage to 529 contributions.

I contributed $500/kid/month. 2 kids - so it was $12k/year. They both had enough at the start of college to pay for tuition/room/board for a state school. (My state *does* have great state schools that are affordable for in state students.) My dad kick started their 529's with 10k/kid. When he passed, they were almost 5 and almost 7. That's when we started the $500/month thing. When they started college they each had over $120k in their respective accounts. They both have 2 1/2 years to go and there should be a bit (not a lot) left towards grad school. They both work part time for stuff beyond the super basics... They have both figured out (though the older one took longer) how to juggle, work, school, study.

I encouraged both to start Roth's when they had their first w-2 jobs. I matched their first $500. Older son has continued to contribute. Younger son has had a lot of off-the-books jobs so hasn't contributed as much (but he made enough to go to Europe before his freshman year). He's now working a part time w-2 job and contributing to Roth again. It's up to them to save for retirement... but I encourage it and they seem to have learned the lesson.

I was focused on getting me to retirement - which involved paying off our mortgage and maxing my 401k contributions... And our retirement is semi-frugal compared to many here. I retired before they graduated high school (I'm an 'older' mom) which allowed me to be paying close attention to them in the dangerous teen years... They have both expressed interest in FIRE and have seen the tradeoffs - hence their interest in contributing to Roth's while working part time and going to college.

 

[ncbill]

In the OP's situation I'd pay the kids enough to max their Roth contribution every year.

We did not fund a 529 plan.

Our kids ended up having college tuition paid via ROTC scholarships & I covered room & board.

One kid covered even that by attending a military service academy.

 

[SecondCor521]

It depends on a lot of factors:

1. What your resources are. Some parents are just stretching to retire at 70; some are retiring at 35 with extra.

2. What you feel your "obligation" is to the next generation. For some parents, it ends at high school graduation. Others pay for some college. Some expect themselves to pay for Stanford undergrad and Harvard Law. Some might pay for weddings, first cars, or house down payments, some might just help a bit, others buy houses for their kids.

3. Whether the next generation is capitalizing on the opportunity or using the extra help to slack off. See discussion of "economic outpatient care" in TMND.

4. Where else one could divert the money. People have differing opinions on how to balance charity, spending on themselves, saving for their own potential future needs (LTC?) and giving to their kids.

 

[Souschef]

My kids are all grown, so i made some arrangements for our grand kids. I had 529 accounts set up for them. Our oldest granddaughter is going to nursing school, so I am covering her tuition.

 

[street]

Didn't help our only son very much until the past few years. He graduated from HS at 17 and worked all through HS. He went and got his college degree and started work immediately and has been at the last place of work for 19 years now. He pretty much paid for his college working the whole time while going to school.

We did help him and his wife with 709 gifting when they bought a new home. Not that they couldn't have done it on their own but was a chance to gift to them.

He was one that wanted no help, and he would never ask for money or help that way ever.

 

[FlaGator]

It depends on a lot of factors:

1. What your resources are. Some parents are just stretching to retire at 70; some are retiring at 35 with extra.

2. What you feel your "obligation" is to the next generation. For some parents, it ends at high school graduation. Others pay for some college. Some expect themselves to pay for Stanford undergrad and Harvard Law. Some might pay for weddings, first cars, or house down payments, some might just help a bit, others buy houses for their kids.

3. Whether the next generation is capitalizing on the opportunity or using the extra help to slack off. See discussion of "economic outpatient care" in TMND.

4. Where else one could divert the money. People have differing opinions on how to balance charity, spending on themselves, saving for their own potential future needs (LTC?) and giving to their kids.

Very good summary of the factors by SecondCor521. So good, I'll use it as a framework for my response.

1. Resources - We were early- to mid-40's when our 2 were born. Career going well, and didn't ratchet up the lifestyle. Each kid got 25K+ in a 529 before they turned 4. Also did the Florida prepaid college tuition plan. VERY fortunate to be able to do that when we did.

2. Obligation - Late wife had her college paid, mine was loans, grants, scholarships. I was the first in my family to attend straight from HS, she had advanced degrees in the family tree. We decided early to cover the college costs, so put the money away as it became available.

3. Kids' view on the opportunity - Mom drilled in the right life sequence: College degree->job->marriage->babies. She did that so well, I never had to bring it up after she was gone. Good students. Both had jobs by the time they were 16, saved their money and never acted entitled. Another fortunate outcome.

4. Alternative uses - Having kids in our early- to mid-40's, ER wasn't even a topic of conversation. We wanted to make sure their schooling was covered no matter what happened to us or my career. Looking back over the past 15-20 years, putting away less than we did would not have moved the needle on what became my unplanned ER, and would have made the last several years more difficult.

In addition to school expense, I have done the following:
-Contributed 100% of their PT earnings up to the statutory limit to their Roth IRAs since they started working. Lot of discussions about the long term nature of those funds.
-Provided a car after they got their license. I pay for gas and maintenance, they pay for insurance. Connecting attentive, responsible driving to a draw on their PT pay for insurance worked-one accident by the oldest early on, clean for the last 5 years. The younger saw that and has been clean for 2+ years.

As the kids have turned out and life and the market has unfolded, I put too much in 529s. Call it insurance for these two, and a legacy for the next generation.

My compliments on your foresight. Lot of good ideas below to draw from. Find the ones that match your resources, and values and lessons you want to instill. Lots to discuss with the spouse.

 

[daylatedollarshort]

We didn't put anything in 529s. Our state had pretty high income limits for state grants for 100% tuition for in state public schools, so once we retired and could manage our income the kids started getting the grants. The state grant limit was close to the ACA maximum income so it worked out well for us. (Our assets were mainly in FAFSA exempt asset classes and didn't count against us for financial aid.) Plus we had some educational tax tax credits, the kids had paid internships, took low cost online and community college courses for some of the basic required courses, etc. so we really didn't have to pay too much out of pocket.

 

[KRABE]

So, I guess to further expound upon my question. We have 3 kids:

1. My oldest child I will be paying 6500 this year from the business. She is going to work the hours necessary to make that reasonable compensation. All of that will be getting put into her roth account. There is enough work there that I might actually be getting ahead on that part. We have a SEP IRA for the business that would put in another 1625 into her SEP that we will then roll into a roth while her income tax rates are 0. If we contribute the max deductible portion of the 529 we will put in 7570.00
2 The middle child will work some probably only about $2000.00 worth. All into her Roth. Another 500 into her roth by way of the SEP RIA conversion Again 7570 into 529 plans.
3. Our youngest child is still not old enough to work so only the 7570 into the 529 plans.

I look at this as we are transferring 33,335 worth of wealth to our kids. Just in 2023.

I really didn't like the 529 plans until the Secure 2.0 act came around and we will be converting the 35000 to their roth as soon as we meet the requirements to do that. Again, assuming final regulations are favorable to doing so.

So aside from the question of whether we can afford to take that much cash out of our future this year and for the foreseeable future. Besides teaching kids about money is there anything I can do to make sure that they don't blow the opportunity that they will have by having such a large retirement account at such an early age?

I mean feasibly each of them if we continue to keep the business where they can be employed will have almost $200.000.00 in their roth's by the time they are graduating high school assuming normal returns. That can be quite a temptation for them. My understanding from Roth rules is they can't relinquish control over them? Do you just make sure that the address on the account is ours so they never know about it? But if you hide it from them how do you use it as a teaching tool?

Sorry for the thought vomit but writing this all out has helped me come to terms with I think the root of my anxiety about doing this.

 

[Dash man]

We have 529 accounts and custodial accounts for our three grandkids and two more for the kids of a nephew who passed. PA has very generous deductions for 529 plans, so we’re taking advantage of it. We just showed the oldest (12) her account at Christmas and the hugs were worth it. The others are too young. We fully intend to show all the kids once we feel they’ll understand.

 

[SnowballCamper]

So, I guess to further expound upon my question. We have 3 kids:

1. My oldest child I will be paying 6500 this year from the business. She is going to work the hours necessary to make that reasonable compensation. All of that will be getting put into her roth account.

Do you just make sure that the address on the account is ours so they never know about it? But if you hide it from them how do you use it as a teaching tool?

I don't think it's a good idea to hide it from them. If I found out as a young adult that I got paid in retirement funds for work I did for the family business I might not be too happy about that and decide I need the money sooner. I think open honesty about money is a much better policy.

We've got a mix of 529, savings bonds, and Coverdell ESA for DD. We've been more focused on doing well in school and choosing an academic major with good income potential that she will likely enjoy. Any earned income she gets before graduating college will likely get matched by me in a Roth IRA. I haven't told her this yet as she doesn't have a job yet, but I'll be sure to tell her when it happens. She does know that all the cash gifts from family go into her college funds. Good Luck!

 

[athena53]

One area that hasn't been addressed is buying the first home.

I agree that first priority should be funding education. I did that for DS and he ended up in a LCOL area where he was able to buy his first house with a small down payment and a manageable mortgage. We'd moved to the Kansas City area from NJ in 2003 and I don't know how the average person in NJ buys a first home even with a good job and maybe a dual-income household. The house where we used to live- 3 BR, postwar Cape, well-regarded school district, in-ground pool, is now valued at $556,000. So, maybe $500K if it didn't have the pool?

Even if you gift them a $100K down payment they have a $400K mortgage.

Fortunately, when DS and DDIL decided they need to get a bigger place they looked carefully, ran the numbers and DS told me their monthly costs would stay level if I could gift or loan them $10-$15,000. Its the only time they've ever asked for anything and I happily gifted them $15,000. He's my only child, so no need to even things out with siblings.

It was good timing. By the time they moved they were expecting Baby #3.

 

[SecondCor521]

So aside from the question of whether we can afford to take that much cash out of our future this year and for the foreseeable future. Besides teaching kids about money is there anything I can do to make sure that they don't blow the opportunity that they will have by having such a large retirement account at such an early age?

I mean feasibly each of them if we continue to keep the business where they can be employed will have almost $200.000.00 in their roth's by the time they are graduating high school assuming normal returns. That can be quite a temptation for them. My understanding from Roth rules is they can't relinquish control over them? Do you just make sure that the address on the account is ours so they never know about it? But if you hide it from them how do you use it as a teaching tool?

Sorry for the thought vomit but writing this all out has helped me come to terms with I think the root of my anxiety about doing this.

Maybe my reply on another thread would be helpful to you:

https://www.early-retirement.org/fo...about-their-utma-ugma-115271.html#post2826721

 

[pacergal]

To be honest, there were times early on that we barely had $100 left after paying bills and buying groceries. Lower paying govt jobs, in exchange for pensions later on.
We told our kids we would pay for two year community college, and if we could, in the future, help them pay for any loan payback at the time.

The pension payout changed in the 90's, but we were grandfathered in. Fast forward to now, and with our frugal living, we have more than we ever thought we would.
We have helped adult children by paying off those loans, weddings, and down payment.
Starting to consider what to do for DGK.
We feel blessed and thankful every day.

 

[The Cosmic Avenger]

There was another thread to this effect, but I can't seem to find it. I lean more towards giving a stronger foundation earlier on and less help later on, by which I mean paying for school without student loans, so they don't have that drag on their early income, and matching their contributions to a Roth IRA, so they are incentivized to save earlier, and see the power of compound interest by the time they're in a position to contribute on their own. (And, of course, those early contributions will by themselves be a huge leg up in 30 or 40 years.)

We don't currently plan on paying for a house or gifting a down payment, as they are smart and capable, and barring unforeseen circumstances I expect them to be able to do as well as we did, especially since they have those early advantages that we didn't have.

 

[ncbill]

One area that hasn't been addressed is buying the first home.

I agree that first priority should be funding education. I did that for DS and he ended up in a LCOL area where he was able to buy his first house with a small down payment and a manageable mortgage. We'd moved to the Kansas City area from NJ in 2003 and I don't know how the average person in NJ buys a first home even with a good job and maybe a dual-income household. The house where we used to live- 3 BR, postwar Cape, well-regarded school district, in-ground pool, is now valued at $556,000. So, maybe $500K if it didn't have the pool?

Even if you gift them a $100K down payment they have a $400K mortgage.

Fortunately, when DS and DDIL decided they need to get a bigger place they looked carefully, ran the numbers and DS told me their monthly costs would stay level if I could gift or loan them $10-$15,000. Its the only time they've ever asked for anything and I happily gifted them $15,000. He's my only child, so no need to even things out with siblings.

It was good timing. By the time they moved they were expecting Baby #3.

Yep, my oldest is getting married & lives in an area where a big-enough-for-kids home in a decent neighborhood is probably going to cost ~$500k.

So since he paid for his undergraduate himself (via military service) I committed $100k (same for the other kid) towards a home purchase.

I'll probably structure that as a loan which is gradually retired via the annual gift limit.

Apart from that I've told the kids that their parents spending $$$ to not become dependent on them is the best gift we can give.

Given I spent ~15 years caring for a sick parent.

 

[brett]

We paid the lions share of both of our children's post secondary education. Our son financed his own post grad work after he had been in the workforce for a few years.

We have edu programs for each of our three, soon to be four, grandchildren. 3K per year for each grandchild since birth. Held in our name, not the parent's name or the granchild's name.

Helping our children with their retirement? Yes...our will/estate will take care of that for both of them.

But...we both have provisions in our respective wills that the first cut off the top of the estate is $100K for each grandchild specifically for post secondary edu. They are all young now, as we age and as their edu funds grow over time that amount will be reviewed as we update our wills.

Our goal is simple. No matter what transpires with their parents or the grandchildrens financial situation money will not be a barrier to them in moving forward with their post secondary edu dreams and goals.

 

[athena53]

But...we both have provisions in our respective wills that the first cut off the top of the estate is $100K for each grandchild specifically for post secondary edu. They are all young now, as we age and as their edu funds grow over time that amount will be reviewed as we update our wills.

Ooh, I like that! Not planning to revise my will in the near future but will definitely incorporate that. DS has said that anything I leave to him will go to their kids anyway. I may broaden it a bit to allow for trade schools- you never know- and a home purchase if they haven't used it for education by age X. No rush, they're 9,6 and 3 now.

 

[kgtest]

Putting a few thousand in our kids 529 each year. Probably ratchet that up here this year. Plan to put kids on the payroll this year...send them W2 and put some money into Roth. Our kids should inherit a great deal of Roth IRA money as DFIL/DMIL have all their investments converted into Roth, DF/DM have a LOT of their investments converted to Roth and we will have about 75% of our investments in Roth IRA after 2023 is up. If I can convert the rest in 2024 I would, but DW 403b does not have a Roth 401k option that I know of.

DF bought me my first 2 vehicles, gifted me a down-payment on my first home and paid for some of our wedding costs and also paid for my books at school along with some spending cash. DW had all of her college costs and housing covered by GF/GM savings when they passed. DW had her first 2 cars paid for with inheritance, and has also received numerous gifts over the years. DFIL paid for a lot of our wedding costs, and also gifted us some money for a new roof and fence after our wedding since we didn't spend the total allocation that they had set aside for each kid. DF gifted me my roth contribution 2 yrs ago, but since decided he did not want to continue that on.

DF pays for some of our vacation rentals once a year when he shackes up with us on our family vacations. DFIL/DMIL give us generous gifts for birthday and Christmas.

It all certainly helps. And if you have "enough" my as well set the next generation on a path to success.

 

[Aerides]

I mean feasibly each of them if we continue to keep the business where they can be employed will have almost $200.000.00 in their roth's by the time they are graduating high school assuming normal returns. That can be quite a temptation for them. My understanding from Roth rules is they can't relinquish control over them? Do you just make sure that the address on the account is ours so they never know about it? But if you hide it from them how do you use it as a teaching tool?

No easy answer to this but do you remember being 18 or 23? If I had known I had kind of a nest egg I would have been even more of a disaster than I was at that age. And I would have found a way to get at it, or made my parents lives hell trying.

The start I got from them was college, and enough down payment on a car to keep the monthly payments low. When I bought a house in 2001 they gave me $2500.

I'm kind of surprised at how much is floating around in these discussions. I don't personally think it's a good idea to front load the kids all that much. Help them in emergencies, gift them little helpings here and there.

 

[brett]

I have no issue helping our children or children to pay for the tools, ie education, skills acquisition, that they need to make their way to a successful and rewarding life.

BUT...once they have the tools they need to learn to be independent and make their own way. That is part of my job as a parent...to launch them and ensure that they have those tools.

Sure, we will help them over financial crunches but that does not mean we shell out for cars, vacations, or pay off consumer credit credit issues. That does not teach them to be good financial stewards. It does the opposite IMHO.

 

[athena53]

No easy answer to this but do you remember being 18 or 23? If I had known I had kind of a nest egg I would have been even more of a disaster than I was at that age. And I would have found a way to get at it, or made my parents lives hell trying.
<snip>
I'm kind of surprised at how much is floating around in these discussions. I don't personally think it's a good idea to front load the kids all that much. Help them in emergencies, gift them little helpings here and there.

Depends on the kids. When I got out of college I was fascinated by investments (had already bought stock in one company) and proceeded to sign up to put 4% of my pay into my employer's stock plan. I honestly don't think I would have done much differently except maybe buy a less-crappy first car (not a 2-year old AMC Hornet). I most likely would have invested 90% of it. (My Ex would have made it disappear if that much had been handed to him.)

Sure, we will help them over financial crunches but that does not mean we shell out for cars, vacations, or pay off consumer credit credit issues. That does not teach them to be good financial stewards. It does the opposite IMHO.

Yeah, this is the key. I take my grandchildren for haircuts at a fancy, kid-friendly place (more expensive than mine at Great Clips!), put money aside for their education, take them on excursions outside their parents' budget (planning on taking the 2 girls by plan to Chicago for 2 nights again in April) but decisions on cars, family vacations, houses, etc. are based on what they can afford. They make good decisions. I'm guessing they pay their credit cards off in full every month. Do too much for them and you're taking away their independence.

 

[brett]

My grandfather started me off after I got my first paper route at 12 or 13.

He would give me 25 cents for every dollar that I saved. It would take place at Christmastime. I would have to present my bank book (remember the days of bank books?) in order to 'settle up' Later on it was inclusive of any savings bonds that I purchased.

Based on the old saying...take care of the dimes and the dollars will take care of themselves. It was a good lesson to learn early on. Along with 'neither a lender nor a borrower be'
What else would you expect from a canny Scots Presbyterian?