Start by familiarizing them with financial concepts, digging them out of debt and seeding their savings.
"The way I help my kids is to fund their Roth IRAs," says Burke, founder of Birch Street Financial Advisors. "The Roth accounts are incredibly flexible and have the capacity to grow into a sizable account over the course of their lifetime. This is the legacy that I'm leaving for them."
"Instead of them inheriting my wealth when they're in their 50s or 60s and in the highest earning potential and tax brackets, I'm giving it to them now. The compounding feature in a tax-free account is unparalleled," she says.
Roths are funded with income that already has been taxed; capital gains, dividends and interest on investments can be withdrawn tax-free.
Helping With Housing, Too
Burke says she also will help her children when it comes time for them to buy homes. "I plan to help them with a down payment on a home so they can avoid mortgage insurance premiums while being able to build equity in the home value," she explains.
Seeding retirement savings funds and offering to chip in on the down payment for a home certainly are generous ways for parents to help adult children start building wealth. Here are some additional ways you can help an adult child get a leg up financially.
1. Use intra-family loans. Why have an adult child borrow from a bank when he or she could get a loan from you or another family member?
"Instead of borrowing from a traditional lender like a bank, one family member lends money to another family member," says Nick Marino, a Certified Financial Planner and chief executive at Breakaway Wealth Planning in Columbus, Ohio. "This type of loan can be formalized with a legal agreement outlining the terms and conditions, including the repayment schedule, interest rate (if any), and any collateral required."
An adult child could benefit from an intra-family loan in a variety of ways.
"Intra-family loans are often used for various purposes such as helping a family member purchase a home, start a business or cover unexpected expenses," Marino says. "They can offer more flexibility and potentially lower interest rates compared to traditional loans, but they also require clear communication and trust between family members to avoid conflicts."
2. Add an adult child as an authorized user. Placing an adult child on your credit card as an authorized user is an easy way for an adult child to build credit.
Originally published by https://www.nextavenue.org/smart-ways-to-help-the-financial-lives-of-your-adult-children/
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