It’s my birthday and you got me… a retirement account?
We get all kinds of questions about retirement, but this one intrigued us. Sarah lives in Los Angeles. She wanted to know if gifting a retirement account to her boyfriend for his 30th birthday was a good idea… or just plain “mean.”
“He and I have very different financial habits and I’m worried that he will take it the wrong way,” says Sarah, who is 26. “I’m worried that it’s kind of a mean gift to say: ‘Hey, you just turned 30. You should think about retirement.'”
Sarah says her boyfriend has a job and works full-time at a company, however his employer doesn’t offer retirement accounts with matching contributions and so her boyfriend says it’s not worth it to save money with the company. Sarah isn’t saving for retirement either. She’s younger, but she recently depleted her savings to spend on living expenses to attend graduate school full-time — and she’s planning on taking out student loans to help with tuition.
We asked Jill Schlesinger, personal finance expert and CBS News business analyst, to weigh in.
“I actually think that the gift of a retirement plan is a lovely idea and it’s not mean, it’s totally awesome, but you’re not in a position to make any sort of huge gift,” says Schlesinger. “Frankly, as my friend would say, it would fry my onions if you were putting money into his retirement and he wasn’t.”
Sarah recognizes that her own financial situation isn’t ideal, but says she’s done some research and found a retirement plan through her credit union that can be opened with just $500 as a starting contribution. Would that be too much? Schlesinger says yes.
“The best gift you could give him right now is to sit him down in front of his computer and enroll him in his 401(k),” Schlesinger suggests. “You get paid a dollar and some portion of that dollar you can choose to put into a 401(k) and the money that goes into a 401(k) does not get taxed. So, there’s a dual benefit. The amount of your taxable income is starting to drop and as a result, your tax bill will go down. Number two, you’re socking money away into an investment at age 30 that you hopefully won’t touch for 30 or 40 years,” says Schlesinger.
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A guide to U.S. retirement accounts
Sarah will have to figure out another gift for boyfriend. He collects vinyl records and DJs as a hobby. Have any ideas for her? Leave a comment below if so.
And for more of Jill Schlesinger’s advice — including whether to pay off student debt before starting a retirement account and what options there are for saving when your company doesn’t offer retirement plans — click on the audio player above.
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