Many of our clients are shocked to learn we don’t recommend utilizing their child’s Roth IRA funds to pay for their educational expenses. Rather, we recommend increasing salaries through the practice in exchange for their increased marketing and website services, while taking advantage of the American Opportunity Tax Credit and Lifetime Learning Credit to reduce or eliminate federal income taxes. This can often lead to $150,000 or more of funds being left in an adult child’s Roth IRA. Rather than worrying about using the Roth IRA funds for education, use it as a teaching tool to encourage savings.

In today’s economy, it’s very difficult for young people to get ahead in life financially. The cost of a new home, car, and child care has skyrocketed over the past four years, outpacing inflation. And in many cases, increased lifestyle expenses are excessive. This can include living in a more expensive metro area, having an apartment with great amenities such as a gym and swimming pool, and spending outrageous money on entertainment. While you’re unlikely to completely change their behavior, creating an incentive match system with their employer retirement plan can help create the right saving habits.