Your child’s launch into adulthood is a big milestone, whether that’s moving away to college, trade school, enlisting in the military, starting their career, or finding another adventure. To ease the transition into early adulthood, some parents may choose to further financially support their children. Here are a few considerations that can help you determine impactful ways to offer support as your child begins to build their financial foundation:
Start With a Budget
One of the most valuable ways you can help your child during this time is by helping them create a realistic budget, balancing the income they earn and any financial support you provide with anticipated monthly expenses. Having a clear picture of monthly costs can help you both approach this next phase with clarity and confidence. It can also help you offer financial support with intention and purpose.
Rent
Subsidizing rent can offset a significant portion of a young adult’s financial responsibilities. Parents may need to co-sign on a lease if their child does not have sufficient income. In some circumstances, it may make sense to explore purchasing a property as a long-term investment and allow your child to use it.
Health Insurance
Health insurance law allows children to remain on their parents’ health insurance until they are 26 years old. If your child is living in the same state as you, keeping them on your plan may be a great way to provide financial support. If they are living in another state, it’s important to be sure that they will have access to providers where they live through your plan coverage.
Emergency Fund
If you want your young adult to begin to develop financial independence but still have funds in an emergency, consider funding a joint checking account with both of you named as account owners. This will allow them quick access to emergency funds while you can monitor what is being withdrawn.
Family Loans
Instead of making financial gifts or paying expenses directly, consider providing support in the form of a loan. Tax law allows for loans between family members, but it is important to have a written agreement documenting the terms of the loan and to charge a reasonable interest rate to avoid the loan being considered a gift.
Retirement Planning
Helping your young adult plan for retirement early in their career can pay huge dividends down the road. If you’d like to help get them set up for the future, you can consider contributing to a Roth IRA on their behalf. Ask your financial planner about annual contribution limits.
Check With a Professional Partner
There can be nuances to consider with all of these possibilities, including if some will require you to file a gift tax return. Be sure to consult with your tax or financial professional. If you have any questions or would like to talk about various services that can support your needs, reach out to the team at JNBA Financial Advisors for a no-obligation complimentary consultation call.
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