If you have a child who is about to turn 18, you may be wondering what financial planning steps you should take to help them transition into adulthood. Here are some items to consider:
– Health Care Directive: This document allows your child to name someone who can make medical decisions for them if they are unable to do so themselves. It also lets them express their preferences for end-of-life care and organ donation. Without a health care directive, you may not have access to your child’s medical information, be present at the bedside in an emergent situation, or be able to intervene in their treatment.
– Durable Financial Power of Attorney: This document allows your child to name someone who can manage their financial affairs if they are incapacitated. It can cover things like paying bills, filing taxes, applying for benefits, and investing. Without a durable financial power of attorney, you may not be able to help your child with their finances or protect their assets.
– Roth IRA Contributions: If your child has earned income from a job or a business, they can start saving for retirement by contributing to a Roth IRA. A Roth IRA is a type of individual retirement account that allows your child to invest after-tax dollars and withdraw them tax-free in retirement. The contribution limit for 2023 is $6,000 per year, or $7,000 if your child is 50 or older. You can also contribute to your child’s Roth IRA on their behalf, as long as you don’t exceed the limit or their earned income.
– Bank Accounts: Your child may want to open their own bank accounts when they turn 18, or continue using the ones they already have. You can help them choose a bank that offers low fees, high interest rates, and convenient services. You can also advise them on how to manage their money wisely, such as creating a budget, avoiding overdrafts, and saving for emergencies.
– Building Credit: Your child may want to start building their credit history when they turn 18, which can help them qualify for loans, mortgages, and credit cards in the future. You can help them by adding them as an authorized user on your credit card, co-signing a loan or a lease with them, or teaching them how to use credit responsibly. You can also monitor their credit reports and scores and help them correct any errors or fraud.
These are some of the financial planning items to consider when your child turns 18. By helping your child with these steps, you can prepare them for a successful and independent future.