15 Jan How can I help my daughter save more for retirement?

Q. Our daughter has a Roth IRA and also contributes to a 457 plan through work. She cannot afford to contribute to both, so our question is whether my wife and I contribute to her Roth IRA? If we can, is it okay to contribute directly from our bank account or should we give her the money and let her make the contribution from her account?
— Dad

A. We’re glad your daughter is saving, and it’s generous of you to want to help her save even more.

First, a 457 plan is similar to a 401(k) or 403(b) plan.

“Just like in a 401(k) plan, you can have your salary deferrals in one of two ways: a pre-tax traditional contribution or an after-tax Roth contribution,” said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton. “If she is young and starting off her career, I generally recommend Roth contributions as they are in the lowest tax bracket of their life.”

Lynch said your daughter should see if the 457 plan has a Roth option. If not, she can talk to her employer about adding one.

“If they can’t add it, I would then see if they have any match on the 457,” he said. “If not, then it is a toss-up between the IRA and the 457.”

As long as she has not maxed out a IRA and has income below $122,000, she can potentially max out both her 457 and a Roth IRA, Lynch said, noting he loves the idea.

As for how you make the contribution for your daughter, you can gift her the money or make the contribution directly, Lynch said.

The amount you’re giving is below the gift tax level so whatever is more convenient should work just fine, he said.

“The most powerful money she is investing is the money she invests today due to the amount of years it is compounding,” he said. “To the extent you can help here, it will be a tremendous benefit for her 40-plus years from now.”

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This story was originally published on Jan. 15, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.