a hand on a keyboard next to a stuffed animal

Media / Blog

Parents & Grandparents- Help Your Recent College Grads With This Simple Life Changing Tool


This One Big Mistake Could Cost You Early Retirement

August 14, 2022

Your child and or grandchild has been looking to you for advice and guidance their entire life. That certainly doesn't stop when they graduate from college. Young adults still need your help when it comes to making important decisions such as big-ticket purchases, finances and investing their money. Although you may not be an expert in this field, you can still point them in the right direction. You may have helped your loved one get through college, but you're not out of the woods quite yet. In essence, you still have some child or grandchild related responsibilities left to take care of.

The good news is that this life changing financial tool is easy to set up and will make a real impact on their retirement. Please keep reading for more information on helping your recent college graduate enroll in a 401(k) retirement account. Contributing to a 401(k) is one of the easiest things that your young adult can do to help ensure their future financial security. However, 32% of people don't take advantage of this benefit at all. Other recent college graduates may work for organizations that match contributions to 401(k), but they don't save enough to get the full amount.

In essence, it's like walking away from free money or an automatic raise. When it comes to helping your recent college graduate figure out how to make it in the real world, you want them to know better than to leave a single cent on the table. The following financial tips for young adults will help them understand the importance of using 401(k) benefits to their advantage.

It's Important to Explain the Value of a 401(k) to College Students Before They Even Get a Job

Do you have a recent or soon to be college graduate in your family? If so, they're probably applying for jobs, scheduling interviews and comparing any offers that are on the table. This is the very best time to explain to them that compensation is more than just a salary. Companies that offer a 401(k) may put more money into employees' pockets. Retirement savings is where it truly counts the most. Businesses that offer a match usually provide plan participants with an extra 3% to 6% of their earnings to stash away in a 401(k) (or similar plan such as a SIMPLE IRA). However, your young adult needs to take advantage of it.

You need to keep in mind that young adults don't like to be lectured. It's far more effective to sit down with them and help them list the benefits that come with each job that they're considering. For example, help them figure out the value that each benefit will have in five years, ten years, and twenty-five years. All the pieces of the puzzle must be placed on the table in order for them to make a well-informed choice.

Young Adults Should Start Saving Early On

A job that provides a 401(k) savings plan is a better financial situation than one that doesn't provide any retirement benefits even if it pays slightly more salary. While this may be obvious to you, it may not be to your recent college graduate. That means you need to sit down and explain this to him or her. It's not only due to the matching contribution, which helps, but also because of compounding returns. In essence, compounding returns can help turn typical savers into millionaires. However, it takes decades of time to achieve this.

That means the earlier your young adult takes advantage of enrolling in a 401(k) and even a few other investments, the easier it will be for him or her to save the amount of money that they will need to be secure, stable, and financially independent. You need to be perfectly clear in your message about this. A good idea is to show your young adult a compound interest calculator. Play around with the numbers to demonstrate that investing from day one of their new job will make it a whole lot easier to accumulate enough money to retire comfortably.

If your child or grandchild is more of a visual learner, you can find charts online that show the positive effect of compound interest over long periods of time. Please keep in mind that both information and interactive calculators that are available to you are only self-help tools. They should not be used with the intent of providing any investment related advice. On that note, it's a smart idea to seek the advice from a qualified financial professional. That way, you will be able to obtain personalized advice about your young adult's personal financial situation.

Enrolling In a 401K Makes Saving Money Easy

Saving money for retirement certainly isn't an easy task, especially for young adults who are new to the working world. Many recent college graduates spend money as soon as they earn it. It's basically the first time in their lives that they find themselves with more money than they've ever had thanks to their full-time job. One of the most positive aspects of a 401(k) account is that it guarantees that they're saving money because contributions are made automatically when they get paid. It's incredibly important that you fully encourage your young adult to opt in to the 401(k) plan that their employer offers from day one of the job.

In addition, they should contribute at least the minimum amount or more to get the full employer match. It will serve as a nice safety net for them. Enrolling in a 401(k) is also the first and easiest step to wisely managing their money.

401k Contributions Have Tax Advantages

You should explain to your child or grandchild that the money they contribute to their 401(k) account in the current year goes a long way in helping them save on the amount of taxes that they're going to owe. For example, if your young adult contributes to a 401(k) and an account like a Roth IRA, they'll be able to spread their tax obligations around between present and future years. Roth IRA contributions are taxed today, however earnings withdrawn after retirement are completely tax free.

If your child or grandchild's employer's plan offers a Roth account option, they could choose to split their contributions to the 401(k) plan into a traditional and Roth account since there are no income limits on 401(k) contributions. In 2022, they can actually contribute up to $20,500 to an employer plan.

Typically, when starting a career, earnings are lower and with a long timeframe, compounding has longer to work, a Roth is likely the most efficient way to grow.

Offer Another Reason For Your Young Adult to Enroll in a 401k Account

If your child or grandchild isn't interested in enrolling in a 401(k) account after you sit them down and provide them with the advice as listed above, you can always provide them with an incentive. Offer to match whatever they contribute each month. You can also encourage other family members to do so in lieu of gifts. The contributions can go into an IRA as long as the total annual contribution doesn't exceed the person's annual income or $6,000, whichever is lower. It's important to note that deductions may very well be limited based on adjusted gross income and participation in the employer's retirement plan.

Sit Down With a Third Party

Last but certainly not least, if all else fails, you can always set up a meeting with a professional financial planner. Many young adults will take the advice of an expert far more seriously than advice from their parents or grandparents. You can also provide them with a few books about investing and personal finance. There are many out there to choose from. If you know that your adult child or grandchild won't read the books, send them links to a few online articles.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!


What You Need to Know Regarding the Inflation Reduction Act

Sign Up

Sign up for our exclusive Sunday Paper with a weekly market commentary, insightful personal finance blogs, and life changing education guides.

Email sign up

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

This site is published for residents of the United States only. Registered Representatives of Kestra IS and Investment Advisor Representatives of Kestra AS may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact Kestra IS Compliance Department at 844-553-7872.

PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. Kestra IS and Kestra AS makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is Kestra IS and Kestra AS liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.