College graduates often face an embarrassing problem once they leave their fostering mother (aka, “alma mater”) and return to their real parents. Given the sizable loans most student accumulate, they’re left with stark choices. Their first priority is to begin paying back those loans; their second priority is to move out of their parents’ home. If there’s a third priority, it usually involves entertainment, leisure or just enjoying life.

The last thing they want to do is to live in their parents’ basement, and they’re also not likely to prioritize saving for retirement. When given the choice between living in their parents’ basement to save for retirement or deferring retirement saving to be able to afford to live on their own, most adult children would prefer the latter.

Related: Older Americans carrying more debt into retirement

And that’s a decision that could end up costing them millions. We all know the largest retirement dollars come from early retirement contributions. By forgoing retirement savings, recent college graduates make it harder on themselves to retire in comfort. And watching that unfold can make it harder emotionally (not to mention financially) on their parents.

There’s a third option many parents might be interested in considering. What if parents actually paid their child $5,500 a year not to live at home?

Why $5,500? Because that’s the maximum allowable contribution anyone under 50 years of age can make to their IRA (assuming they’re earning at least that amount).

Remember, the funds contributed to an IRA can come from any source. They just need to be offset by earned income. College graduates, therefore, can spend their hard-earned money on repaying college loans, apartment rental and various other necessary and unnecessary expenses. When it comes time to contribute to their IRA, mom and dad can gift them the money.

What would motivate mom or dad to do such a thing? First, they’re probably at a place in their lives where they have a better handle on things than their kids. They’ve learned to live within their means and it might be easier to free up some money for the benefit of their child.

Moreover, parents tend to worry about their children’s future. Knowing their children can get a head start towards retiring with a significant nest egg will give them one less thing to worry about. And less stress means a better night’s sleep.

What do the actual numbers look like? If you max out the IRA contribution from the age of 22 through the age of 30, the value of those contributions upon retirement will be roughly $1.5 million dollars. That’s a pretty hefty head start. And it doesn’t include what the child might contribute to a corporate retirement plan.

Those $49,500 in contributions might be a bit much. Want to achieve the same result at less than half the cost? Consider starting a Child IRA at age 14 and contributing the max during the four years in high school. That’ll cost only $22,000, but yields the same $1.5 million dollars.


Christopher Carosa, CTFA, is chief contributing editor for FiduciaryNews.com, a leading provider of essential news and information, blunt commentary and practical examples for ERISA/401(k) fiduciaries, individual trustees and professional fiduciaries.