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As parents, watching our children grow up and head off to college is a bittersweet experience. On the one hand, we’re filled with pride at their accomplishments and excited for the adventures that await them. On the other hand, it’s natural to feel a sense of loss and uncertainty as we navigate the transition to an empty nest.
Recently, I had the pleasure of chatting with Jeff Krommendyk, our Expert Network insurance expert, about the joys and challenges of this phase of life. We shared stories about our own experiences launching our kids into adulthood, and offered practical advice for parents who are preparing for this transition.
Financial Considerations
One of the first topics we tackled was the financial side of sending kids to college. We discussed the importance of planning ahead and saving for college expenses, as well as the potential benefits of using a 529 plan, a college savings plan we often share with our clients here at A&I Wealth Management. Jeff also shared a valuable tip regarding living expenses for students attending community college. He explained that under certain circumstances, these expenses may qualify for reimbursement under a 529 plan, providing a potential cost-saving opportunity for families.
529 plans provide a number of valuable benefits to families saving for education. One of the most significant is the tax-advantaged growth of contributions. Earnings in a 529 plan grow tax-deferred, meaning you won’t owe taxes on the investment gains year after year. When you withdraw the funds to pay for qualified education expenses, those withdrawals are also tax-free, providing significant savings over time.
In addition to tax benefits, 529 plans offer a great deal of flexibility. The funds can be used at a wide variety of educational institutions, including most accredited colleges and universities, as well as certain vocational and trade schools. If the original beneficiary decides not to pursue higher education, the funds can be easily transferred to another family member. And if there’s money left over after graduation, it can be used for future education needs or even rolled over into a Roth IRA under certain circumstances.
Another advantage of 529 plans is the control and ownership they offer. The account owner, usually a parent, maintains control of the account even after the beneficiary reaches adulthood. This helps ensure the funds are used for their intended purpose. Finally, 529 plans offer the potential for growth through various investment options, helping families combat rising education costs.
For complete information about 529 college savings plans, including investment objectives, risks, fees and expenses, please carefully read the issuer’s official statement before investing, which can be obtained from your financial advisor.
Insurance Matters
Next, we turned our attention to insurance – a crucial consideration for young adults starting out on their own. We talked about common mistakes people make when it comes to car insurance, property insurance, and health insurance.
Jeff emphasized the importance of understanding the specific requirements and limitations of insurance policies, especially as kids reach adulthood. He encouraged parents to work closely with their insurance agents to ensure their children have the appropriate coverage as they transition to college and beyond.
Three considerations that stood out to me for insurance considerations are:
- Age Limits and Dependency Requirements: As discussed in the podcast, many auto insurance policies will only cover children up to a certain age, often 26. To remain on their parents’ policy, they may also need to meet certain dependency requirements like being a full-time student or living at home for a portion of the year. Once these conditions are no longer met, young adults need to get their own insurance.
- Insurable Interest: To insure a vehicle, the person named on the policy must have an “insurable interest” in it, meaning they would suffer a financial loss if the vehicle were damaged or stolen. As children become adults, it’s important to transfer the title of any vehicles they’ll be taking with them into their own name so they can properly insure them.
- Coverage for Off-Campus Housing: Standard homeowners insurance policies may extend coverage to students living in on-campus dorms. However, when a young adult moves off-campus into a rental property, they’ll typically need their own renters insurance policy to cover their belongings and provide liability protection. This is often a requirement from landlords as well.
Helping Kids Stand on Their Own Two Feet
Finally, we explored the emotional side of launching kids into adulthood. One important tip for parents helping their kids navigate adulthood is to encourage independence while still providing support and guidance. This means allowing your kids to make their own decisions, even if they make mistakes along the way, while also being available to offer advice and help them learn from those experiences.
This approach fosters a sense of responsibility and self-reliance in young adults, which are crucial skills for navigating the complexities of adulthood. It also helps maintain a healthy parent-child relationship built on trust and mutual respect.
Key Takeaways
- Plan ahead financially. Start saving for college expenses early, and explore potential cost-saving options like 529 plans and community college.
- Understand insurance requirements. Work with your insurance agent to ensure your children have the appropriate coverage as they transition to adulthood.
- Encourage independence. Provide support and guidance, but also allow your kids to make their own decisions and learn from their mistakes.
- Embrace the empty nest. While it’s natural to feel a sense of loss, this is also an exciting time for parents to rediscover their own passions and interests.
Watching our kids grow up and spread their wings is a journey filled with both joy and challenges. But with a little planning, communication, and a whole lot of love, we can help our children successfully navigate the transition to adulthood – and embrace the next chapter in our own lives as well.
To hear the full discussion, be sure to tune into The Expert Network Podcast #102, Helping Adulting Children Out of the House.
