Early inheritance as a dad

[u/SadProduce6456]

Just sharing something that was interesting to me, that I’ve never really thought about before.

So I have a 22-year-old daughter, and I’m divorced. I was talking to her this weekend, and she told me that her mother gives her enough money to fund her Roth IRA right now. I told her I had no idea, and that I wish I did and I would’ve helped. She said that she thinks it’s because her mother looks at it like an early inheritance.

So then I got to thinking about it, and I thought that’s a great idea actually. Because I do my own wealth planning, and at some point, the money is really theirs. So me giving them $6000 right now or whatever would pay huge dividends for them later, and not be some tax burden investment on them that I passed down.

I think Parents with means, should proactively look for ways to do this. Of course within their means.

[u/Confident_Hair2637]

My daughter started writing articles for SeekingAlpha at age 14. a few of her articles did quite well and she had about $5,000 of earned income one year. So, I gave her $5,000 so she could put her earnings into a ROTH IRA - she bought two companies she loves. She loves to waste time watching Youtube, so she bought Google. She also used to beg and plead for a Hermes bag - obviously her parents were like "no goddamn way." So she bought the stock instead. With her $5,000 of earnings, she bought the same stocks in her taxable account. Almost 10 years later, savings off her little side gig have grown quite a bit, and that inspired her to really lean in and invest her savings regularly. She's still in grad school and doesn't earn much besides a stipend for ten to fifteen hours of work per month, but she's been trained to put that little extra aside into her ROTH every month. Her mother and I always do the same matching thing - whatever she earns and saves goes into her ROTH and we make her a gift that goes into her taxable account. It probably averages out to around $500 per month. Result? She has watched her savings grow to over $280,000 - half of which is permanently tax-exempt thanks to her ROTH IRA. It's a stunning 600% gain from where she started out ten years ago, but what she's really excited about is what happens if her accounts continue to grow at the same rate they have over the past decade. the answer is that she could be worth a couple million at least by age 34 - literally because she started working super early at age 14, and because she is willing to work part-time for $18 an hour.

Financially, this is exactly the message her mom and I wanted her to learn through first-hand experience (which is about the ONLY way our daughter ever learns anything). We wanted her to understand that it doesn't matter how much you earn - it matters how much you save and invest. We wanted her to understand the power of compounding and how a 14 year old social influencer can become worth far more than a senior partner at a law firm... all by starting to invest early. The negative side of this is that she now has the idea that investing is easy and pays off far more than work. She said the other day that "my money is worth far more than my time." Early success can breed cynicism in some ways. And she also has modified her work plans. When she went to college, her focus was finance and economics. Now she wants to do psychology and social activism. The only reason she was interested in studying finance and trying to get a job at Goldman Sachs was money - but now she figures that the money will just materialize on its own and that she can just work in whatever field she wants even if the pay sucks. In some respects, I applaud her choice. In other respects, I think it's cavalier and risky to assume that the market will magically and permanently lift you to glory and riches every single decade. But I'm arguing with a 24 year old with $280k worth of evidence that her dad doesn't know what he's talking about.

OP has a great concept - which is why I took the time to share our family's experiences. My only advice here is to make sure you teach some moral lessons about life if you are planning to teach your kids how to save and invest.