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Start retirement savings early

By Jennie L. Phipps · Bankrate.com
Monday, July 18, 2011
Posted: 3 pm ET

Getting your adult children to think about their own retirement savings plans is an uphill battle -- particularly in this lousy economy.

But longevity could make it in your best interest to push them on the point. You don't want to be 80 years old and scraping together money to help your 60-year-old child cope with an unwelcome early retirement.

One suggestion for handling this issue is to get them in the retirement savings habit while they are still young enough for you to be able to call the shots.

Here are some sensible suggestions, most of them from Rick Rodgers, certified financial planner and author of "The New Three-Legged Stool: A Tax Efficient Approach To Retirement Planning."

Start at 16 or even earlier. Just $5,000 contributed to a Roth IRA each year for five years starting at age 16 could be worth more than $1 million by the time the teen reaches age 65. In a Roth IRA, all that growth would be tax-free when withdrawn. A child has to have actual earnings so you don't run afoul of the IRS, but lawn-mowing and baby-sitting qualify as long as you keep careful records.

You can kick in. Your child can save as much as he earns in a Roth up to the $5,000 2011 limit. He won't pay tax on his earnings, but if he can't manage to save every penny he makes, you can kick in up to whatever it was he earned.

Offer a parental match. Employers do it. Why not you?

Decide where to put the money. It can be difficult to find a savings institution that will allow you to open an IRA for a child who is younger than 18, but mutual fund companies Vanguard and T. Rowe Price are among those that do.

Once your child graduates from college and goes out on his own, he or she will be off to a great retirement planning start -- and you can continue to help in lieu of holiday and birthday gifts. Who knows what to buy an adult child anyway.

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