First off, let me say that you are both awesome parents. Not only have you put some thought about your own finances, but you've given enough thought to your children to help them while still instilling them with a work/saving ethic.
On the other hand, I absolutely hate (admittedly biased) people with parents as good as you. I grew up with less than nothing, and busted my ass pretty much everyday to ensure that I'd have a better future for myself. It really sucks that every year I see parents leveling the playing field for their kids, and it seems that my dedication, ingenuity, and hard work mean less and less.
Thanks-- taken as a compliment. The short version is that my spouse and I are trying to rise above our raisings. We're not doing this for our daughter's personal lifestyle-enhancement benefit as much as we're paying forward what we wish had been available for us when we were this age. It'll make my spouse and me feel better about ourselves than our daughter will ever feel about her finances.
I just hope that in our parental efforts to feel good about ourselves that we don't inadvertently mess up our daughter. Frankly, giving $28K to a 20-something is highly risky (gotta know your kid) yet the tax-deferred aspect of this scheme is too important to screw up. By 2016 I may have decided that it's not working.
I was raised in financial blissful ignorance and I have no idea whether my parents could have afforded Penn State, let alone Carnegie-Mellon. However the U.S. Naval Academy was very affordable (luckily it was also my top choice). Our daughter's been raised by two USNA alumni, and she thinks that the Navy is a great deal. She may be right, but I'd feel pretty crappy if the submarine force someday does to her what I've seen it do to a few of my shipmates. I don't want her to be at a point in her military career where she feels coerced to stay Navy for the paycheck (like I was), let alone the nuke bonus, and I'm trying to get her to trust that she has the skills to earn her own living. Having a stash in the retirement accounts might be just the confidence booster that she needs. I had my own "military inferiority complex" when I was on active duty, but I think she's seeing her own bright light.
The college fund has never been part of our retirement portfolio. When our daughter was born in 1992, we started investing $100/week in a separate account. Once we had a couple years of community-college tuition built up in EE bonds, we went aggressive. From 1996-2001 we invested in Tweedy Browne Global Value and in 2002 switched to Berkshire Hathaway. That worked out great until early 2008 when we went into CDs. By the time compounding had finished working its magic, we had nearly enough to afford to pay Rice University's full retail price.
Then our daughter went out and got herself a Navy ROTC scholarship. Her idea, but biased by what she sees as a great lifestyle. Navy is paying about 75% of her college degree, although of course that's going to be taken out of her hide a nickel at a time for five years after graduation.
Since she's saving us most of the college fund, it seems fair to do a little parental profit sharing. My spouse and I have no plans to spend it, and it makes no sense to lock it away until our daughter's in her 60s (or even older). Hence the idea of gifting her now so that she'll max out her retirement accounts. She's definitely earned the money, but I think it's best to lock it away as much as possible to discourage the temptation of lifestyle creep. She's been doing well with four-figure sums of money (buying her first car, living off-campus) so she's probably ready to step up another digit. She'd better be, because the Navy is bribing junior officers to stick around for $30K/year bonus money. Back in 1990 I thought $10K/year was a fair trade. Today I'm more skeptical about the value of $30K/year.
I am adult offspring on the receiving end of a similar (but smaller) gift, so I'll offer my perspective.
It is EXTREMELY helpful to have such a gift at my current early stage of my career.
Without this kind of gift, it would have much more difficult to find room in my budget to make retirement contributions feasible, and I would still be spinning my wheels trying to replenish savings to get enough for an emergency fund should I end up un- or under- employed for 6 months again.
I guess the point I'm making is having a little bit of support gave me the security/peace of mind to decide for myself that I could make ends meet every month while contributing to retirement accounts, and now that the habit (and automatic transfers) are in place it would be much easier to continue to do so without support. I had never looked at it from the perspective of an early inheritance in tax-efficient vehicles, but it certainly makes sense now that you mention it.
I'm on board with parents who help fund retirement accounts. It's a really great idea. I know that one of my friends had her dad completely maxing out her Roth IRA.
I know that rjack, in another thread, talked about giving his sons 100k each for college and giving them the excess. My parents aren't giving me 100k (I wish!), but they have given me a substantial amount that makes me financially stable. I think that it's worth doing; money at this moment means more than an equal amount of money later (for example, when the parents are dead and the money is inherited).
Thanks, guys, that's the confirmation bias I'm seeking. I'm hoping this retirement-savings subsidy wouldn't stunt a 20-something's motivation & initiative, like the trust-fund baby who told herself "Oh, I can quit this job if I don't like it".
I am also jealous of these people because they won't have to support their parents financially in the future, either (presumably). I have a really hard time thinking about this with my parents who got help with college education and down payments and small inheritances, whereas I didn't get any of that stuff from them and know that they have not funded their retirements at all.
The jury's still out on whether our daughter will have to support her parents!
My father ER'd in the late 1980s and lived very frugally on his pension, investing almost half of it in equities for the last 25 years. Today his pension & Social Security pay about half of his expenses at the care facility, and I think his assets will probably outlast his Alzheimer's. Spouse's parents are so conservative in their investments, and have such family longevity, that I suspect they're going to run out of money. They're cheapskates (in the full pejorative sense of the term) but they've been in CDs for over a decade... and they have at least two more decades left.
My spouse and I each have our own military pensions, which I suspect will be pretty popular with the care facilities of the year 2040 or later.
But again I'm mainly trying to break the cycle and help our daughter avoid what I'm having to do today for my father (and what he had to do for his) and what we might have to do for spouse's parents. As much as it may benefit her, it's going to make me feel even better.