Would you contribute to your kid's 401K ?

[LOL!]

One doesn't need permission from the internet to give money to their children.

That said, $82K salary is fantastic for this age and the rent is about what I was paying for an apartment back in 1986 near New York City with less than half that salary. So that rent seems very cheap to me.

And I have a millennial daughter who spends most of her money I think on going out to bars 5 nights a week. I think she has about -$500 leftover each month, so your daughter with $230 a paycheck is doing great.

But who cares what I write. You can do what you want to and you should.

 

[RenoJay]

I think people have covered the different angles pretty well. My kids are a lot younger, but if I found myself in this situation I’d likely offer some sort of match of what the kid contributes to retirement. This will incentivize savings over spending and may eventually influence decisions regarding HCL areas vs. LCL areas. Even if you don’t help her now the funds will likely compound in your account and pass to her eventually, so I think it makes sense to consider how to incentivize more of the good behavior she’s already demonstrated.

 

[targatom2019]

I think people have covered the different angles pretty well. My kids are a lot younger, but if I found myself in this situation I’d likely offer some sort of match of what the kid contributes to retirement. This will incentivize savings over spending and may eventually influence decisions regarding HCL areas vs. LCL areas. Even if you don’t help her now the funds will likely compound in your account and pass to her eventually, so I think it makes sense to consider how to incentivize more of the good behavior she’s already demonstrated.

Here are the benefits I see if she maxes out her pension & 401k:

1. Pre-tax money so it's only costing her around 15k-16K to gain 18K.
2. Gets her to a lower tax bracket.
3. She can invest in a more aggressive growth approach because time horizon is on here side.
4. From my experience, the sooner you invest in the market the better it will be.
5. She will always feels not having enough $$$ at the end of the month so she will not spend much, specially for a 22 yo.

 

[NC 57]

I began teaching my now 31 year old daughter about money and saving at a young age. She was very responsible with her money as a teen. She had a checking account, savings account, and credit card. When it came time to go to college I covered her tuition, room, board and gave her a small allowance. She also worked part time during college.

The college funding was not without strings. First she had to borrow part of the tuition and I agreed to pay off the loans upon graduation. If she did not graduate, she would have to repay the loans on her own. Second I required her to develop and review with me at the beginning of each semester a budget projecting her expenses, including tuition, room, and board. Once I approved the budget she received a check for the amount I was funding. At the end of the semester she had to show me her actual spending versus budget, plus a new budget for the next semester. The agreement was if she came up short during a semester she was on her own to figure out how to get by. If she had a surplus it was hers to keep. Every semester she had a surplus. Needless to say she graduated and I paid off the loans.

She decided to go to graduate school and I told her she was on her own. The only assistance I provided was to let her live at home rent free while she earned her masters degree. She stayed at home, worked two jobs, took out loans and did her coursework through a state university distance learning program. Upon graduating she went to work full time in her chosen field and kept one of her part time jobs so she could pay off her loans early.

When she completed her loan repayment my wife and I decided to start giving her the annually the $14K each ($28K total) the IRS allows. The strings applied are she fully funds a Roth IRA and applies the rest to her $401K which she is able to max out. She saves the balance. Since she is our only heir, this allows us to effectively move funds out of our estate tax free. If she ever shows signs of financial irresponsibility we will stop the payments.

She has a small inheritance from her grandmother which is held in trust. I am the trustee. When the trust was established three years ago I began using it to teach her about investing. I set up the trust account at Vanguard and explained the advantages of low cost mutual fund investing and managing risk. I let her pick the funds. Her funds have performed well, but of course so has the market. I intend to liquidate the trust and pass the funds to her next year.

My daughter works in a low paying profession and loves her work. She lives much more frugal lifestyle than I did at her age and she seems to be happy with her life. If she continues to live below her means, and invests our annual gifts plus her own savings responsibly, she should have a comfortable retirement in 35-40 years.

As to her inheritance from us we have told her she will likely receive some of our estate but we have suggested she not plan on an inheritance because we will be spending some of our assets in retirement and we have included charitable endowments in our will.

All of our financial help has purposefully had strings attached to teach our daughter how to manage money and address her long term needs. We feel blessed she is a responsible adult and seems to manage her resources well.

 

[6miths]

In your situation you have to the judge but in our situation we certainly did. It was about income splitting, tax deferral, and the time value of money. Started at a young age and none of the children who have had control of the money for several years now have spent any of it.

 

[Taxman59]

I did contribute to my 3 sons Roth IRA. I matched their income up to $3k cumulative when they first got summer jobs. Oldest son first said that $3k was "chump change" then left the room . 10 minutes later he came in and thanked me after he realized that the $3k at 18 will grow to a big # (he always uses 10% growth rates for investments) ! The others just thanked me and moved on (they aren't financial types).

 

[Danmar]

All of our financial help has purposefully had strings attached to teach our daughter how to manage money and address her long term needs. We feel blessed she is a responsible adult and seems to manage her resources well.

Sounds like you have done a great job raising your daughter. You should be proud. You imply that the “strings attached” might be the reason things have worked out so well.

My daughter is 33 and displays many of the impressive characteristics of your daughter. I have been generous as well but didn’t feel a need to structure my generosity the way you did. My daughter just seemed to always know what the right thing to do was. If she didn’t she always talked to me about it and I gave my view. This was usually phrased as non binding advice. I think this points out that every family is different and there are many ways to succeed as a parent.

Certainly if financial constraints need to be specific, they should be. But I think that a supportive, loving envireonment coupled with good financial examples from the parents, goes a long way. Cheers.

 

[mnopqr]

Our kids are 22 and 24 and we give them each $5500 to fund a Roth IRA each year. They are both responsible, employed and funding their own 401K's.

They have their own paychecks, budgets, etc so I feel that the Roth is outside of that, mentally, allowing them to be responsible for their own finances without getting a 'monthly stipend' from mom and dad. We don't get involved in their finances except if they ask for help and just generally encouraging them to save as much as possible. When thy started working, they each asked us to help review their budget and figure out how much they could afford for rent and to save.

On the other hand, access to a vehicle such as a Roth is just too valuable to pass up. And we're happy to do a little intergenerational wealth transfer. It seemed the cleanest way to help them without taking away their ability to be responsible for themselves and their finances.

I think the priorities for long term saving generally are funding the 401K up to the level of any match, then a Roth IRA and then funding the rest of the 401K. Assuming income limits allow.

 

[43210]

Interesting discussion, but with the given numbers, I'm not seeing how the OP's daughter could have the slightest difficulty maxing the 401k and IRA (and HSA?) and still have plenty left over. The biggest problem is lack of sufficient tax-sheltered space.