How to Save for Your Kids Without Sacrificing Your Retirement With Kali and Eric Roberge (EP.253)

0:02We all need to make smart decisions with our money. The Long Term Investor podcast shows you how by distilling complex financial matters into easily digestible lessons. And now here's your host, chief investment officer at PlanCorp and the author of Making Money Simple, Peter Lazaroff.

0:22The Long Term Investor Host:Welcome back to The Long Term Investor. In this episode, I sat down with Eric and Kali Roberge of Beyond Your Hammock to talk about one of the hardest parts of family finance, and that's how to help your kids financially without losing sight of your own goals. And we covered so much ground. We talked about retirement versus college savings. We talked 529 plans, custodial accounts, Trump accounts. We talked allowance systems and how grandparents can help without making a family money conversation be more complicated than it needs to be. And what I liked about this conversation is we never really treated everything like a pure math problem that just has one right answer, because we know that raising kids around money is messier than that.

1:03The Long Term Investor Host:So we try to strike the balance in our conversation between your own future, your child's future, and the family dynamics that are not always easy to navigate. As always, you can find detailed show notes at thelongterminvestor.com. And while you're there, you can sign up for my newsletter, which has exclusive downloads for things on topics just like these. Last newsletter had a savings chart of all the common savings accounts for children and which ones were right for you. It also had a download that walks you through the steps of whether or not you should make a 529 to Roth transfer because the answer isn't always yes.

1:38The Long Term Investor Host:Again, you can find that at the show notes at the longterminvestor.com or you can sign up for the newsletter using the link at the top of the episode description. And now here is my conversation with Eric and Kaylee Roberge.

1:54The Long Term Investor Host:Welcome back to The Long-Term Investor. Today, I'm joined by Eric and Kaylee Roberge, the faces of Beyond Your Hammock financial planning firm, also the co-hosts of Money for Life podcast. Eric, Kaylee, thanks so much for joining me here today. Oh, it's great to be here. I've been looking forward to this for a long time. Yeah, thanks for having us. Well, I have to share a fun fact. Kaylee used to be my editor before you had your own child. We're going to talk about kids and money. And I remember writing a post, I think in 2018, about giving my four-year-old allowance that you helped edit. You also were an editor on Making Money Simple.

2:25The Long Term Investor Host:So I have a number of fans who will think that's super cool. Someone behind the scenes helping with the work. But since you've had your own child, you've had your own hands full. Let's dive right in. Either of you can take it from here. I know that you work with a lot of people, like very successful people in their 40s with kids. And when you're talking to parents about trying to build their own financial foundation, how do should they think about the trade-off of of teaching their kids with about money and saving for their kids future goals but two questions are right how do you teach your kids about money and how you take care of your own money and i think teaching kids about money to me is a lot harder than taking care of your own financial future because it's more of a linear concrete set of steps as far as what should you quote unquote do right to establish your own financial future I think there's some, Eric, you can get more into that of how do you prioritize yourself over your kids' future.

3:21But then teaching kids about money is so tricky because what you teach a lot of the times can get in the way of what they're learning. So kids are really good at observing what you do, your habits, how you talk about money. And I think that can get really tricky because we have this platonic ideal of what we want to do with money and then there's what we actually do. So I think that can be a challenge. And it's just something that you got to bring a lot of self-awareness to and a lot of grace to as well and know that you're not going to get it right 100 % of the time, probably not even 50 % of the time, right?

3:55But you've just got to try and iterate and keep going. And as far as the how do I divide up my own money for me and my money for my child when I don't actually know how much money it's going to cost for college or anything else for the kids? Like that is the million dollar question, really tough to answer. But I just always default to, well, do you want to try to optimize for taxes and potentially pay a lot of penalties? Or do you want to optimize for flexibility so that we can adjust as the time comes? And most people, including myself, default to the flexibility part, which makes the plan a lot more clear.

4:31And we can get into the details later on. But that's the essence of how we talk about that.

4:36The Long Term Investor Host:It's very understandable for a parent to want to take care of their kid's future. I find myself constantly reminding parents, hey, like they can take a loan for college. You can't necessarily take a loan for retirement. And I'm pretty sure if we were to give our kids the choice of us living in their basement during our retirement versus like them having student loan debt, they would probably take the student loan debt. Maybe not when they're cute and young like our kids are. And they might say, I want to live with you forever. But realistically, by the time they're teenagers, I think they recognize, no, it'd be nice to have my own life.

5:11The Long Term Investor Host:But Eric, you mentioned a point like when you're saving for college, you don't always know what a child's path is going to be. And you mentioned a preference for emphasizing flexibility. I mean, maybe talk about your general framework for how you get started on parents who want to save for their kids' college. Well, the first thing I say is save money, right? That is important. If you're saving the money and the money is available, you can then decide how to use it. If you're not saving money and it's not available, there's not many options there. So if you can find the money to save, let's put it to work.

5:42Let's make sure it's invested. But when it comes down to it, because we don't know what college is going to cost, we don't know if the kid is going to go to an Ivy League school or some like University of Southern California that's like$100 ,000 right now. or they're going to go to a community college or a trade school or not even go to school. Big extremes there, trying to think that you can know how much to save for the child. It's just a losing game, right? And there was an article in the Wall Street Journal recently with David Blanchett, who I'm sure you know in the financial planning industry.

6:15He's in the same vein. He's saying like, I want flexibility over tax optimization because I don't know how I'm going to use the money. Maybe it's for college. Maybe it's for a down payment. Maybe it's for a wedding. I want the money there for my kids. And that's what I know right now. So let's focus on that.

6:31The Long Term Investor Host:Yeah, that makes sense to me. And I feel like when someone has a savings goal for college, like they're like, I know my kid's going to go to a traditional four year school, even if they don't know where, but they just in their heart of hearts, no matter the age of the child, they're like, that's what's going to happen. Cause that's the life I'm picturing for myself and my child. And I'll often say like, Hey, target like 60 to 70 % of the costs. Now That's an avenue that gives you some flexibility. Saving outside of 529 can give you some flexibility, but I still think that the 529 is really that default savings account.

7:04The Long Term Investor Host:Maybe they're not helpful in all instances, but there's a lot of good benefits. I mean, is there a place that the two of you find that they're most helpful or maybe even share sometimes when you think they're oversold? I think if it's your only vehicle, maybe for college savings or just future savings in general. I think that's probably where we want to stay away from. I don't think we've ever told someone like, don't use a 529 plan. It's more about, you know, leverage the tools that are available to you. A 529 plan is one of them. And then you have some other options as well. So I think it's more about creating a balanced mix rather than saying it's, you know, this is definitely, you need this 529 plan for this situation or you don't need it.

7:46Just like we You want to try to balance like living well now with planning responsibility for the future. You want to balance the tools that you're using to do that. I thought one perspective was interesting. I was talking to a guy named Jack Wang. He's actually a college planning expert. He was on our podcast. And what he was saying was it's not necessarily about like what you're doing with your money now to put in a 529 plan. It's more about like, all right, in the year that you're paying for college, where's the money going to come from? And what is your tax rate going to be? your federal, your own personal federal tax rate?

8:18And can you access the money from different places? Like if you put money into a Roth IRA and you take your own money out, that is the contribution, that is tax-free money at the time of college, that works as long as your retirement isn't getting deflated because of it. So there are different types of accounts that you can use, but overarching is looking at your tax bracket in the years of funding college to make sure that you're benefiting from tax strategy.

8:44The Long Term Investor Host:Yeah. And I feel like for a while, I mean, the flexibility that you're given with a 529 nowadays, after like the Secure Act 2.0, there's been a lot of, you know, off ramps for people who perhaps over save to a 529. So, you know, I think when you don't know where to start and if you're not working with an advisor, you know, oftentimes I'll tell people, I'd be curious if you agree or disagree, like if you get a state tax deduction for making that contribution and you have plenty of cash flow and you're saving plenty for retirement, like you might as well go ahead and make that contribution. Chances are, it's not going to if you if you make that on an annual basis, just up to whatever your state allows to deduct.

9:22The Long Term Investor Host:It's not like that's going to cover all costs of college expenses. I get more concerned when people will like accelerate multiple years of gifts into a 529 all at once, which I do recognize can every once in a while have some estate planning benefits. But more often than not, like it's just an unnecessary lump sum to go into a 529. I mean, what are your reactions to kind of some of my views on this point? So I do like the 529 plans because you have that access to rolling over up to$35 ,000 for the beneficiary into their Roth IRAs, you know, when they have earned income later on. That's a nice benefit.

9:59But I also, I mean, for us specifically, we contribute$1 ,000 a quarter into a 529 plan. Massachusetts gives us up to$2 ,000 of deduction for state, and it's a 5 % state. So it's not really what is like 100 bucks that we get as a tax deduction. So not all that influential. And so I'd rather, again, default to the flexibility. But other states, like I think yours might be what you said, 10 to 15.

10:24The Long Term Investor Host:I think I'm 16 ,000 in Missouri. Yeah. But like Illinois, I think is six or eight. You know, Texas, there are no state taxes or Florida, so you don't get any benefit. But so it sounds like you you're on the same page. Like, hey, if you get a deduction and you have the extra savings capacity, like, why not? Exactly. Yeah. Especially like New York, another$10 ,000 and you could be really high taxes in that state. So that's going to be a huge advantage to you. So do it. Yes. And you mentioned that. So I go into this a little bit in the prior week's episode. So if you're watching us on Cheddar or on YouTube, you can go to the longterminvestor.com.

11:00The Long Term Investor Host:I will link to the episode that actually has a flow chart that explains like, hey, can I convert my 529 into a Roth? And Eric, you mentioned you can only convert as of right now up to$35 ,000 in total for that beneficiary. And that's not all at once. You know, you have to have the same normal Roth rules applying. So if your kid graduates and gets a super high paying job and doesn't qualify for a Roth, you can't convert the 529. That said, I have this feeling that they're just going to make it more and more flexible over time. Like the government wants to incentivize saving for college. Seems like a reasonable thing.

11:37The Long Term Investor Host:All that said, each time these benefits to a 529 come out, I do feel like sometimes people underutilize custodial accounts. And you mentioned at the onset, Eric, like flexibility is key in the planning process that you do with your clients. Any kind of thoughts on that or ways that you think through clients in saving to a 529? versus a custodial account? I'm thinking of a couple of things like UGMA accounts or your UTMA accounts versus just like having a joint account that the parents own that is not actually in the name of the kids, but is kind of the name of the kids in the end. That gives a lot of flexibility.

12:17I don't like the UGMA accounts, right? Because for me, having the money get into the account, growing, and then having it be given to the kid at age 18 and they can use it for anything they want to use it for and you have no control over it after that just seems like a recipe for disaster. Or at least at best a coin flip as to the money goes to good use or it doesn't. So I'd rather keep the control if I'm giving it for my children and then we can educate them and help them work on how to use it. And then at least we can guide that process versus, you know, pulling the cord and saying, I hope you do what's best for you right now.

12:55The Long Term Investor Host:Small pivot from like the college track. We have these Trump accounts that are going to be eligible for contributions in July of 2026. Any high level thoughts on the Trump accounts and where those may or may not fit? Recognizing that I'm not totally sure that I personally have like a set it and forget it playbook for everybody on the topic at this point. I mean, if you have a child that's eligible for the$1 ,000, you know, seed money that the government is going to get, which I think is for kids born in 2025 to 2028 right now. Sure. Why not open an account and get that money and let it ride? Beyond that, we don't love them for a few specific reasons.

13:35One of them is that they are currently administered by the Treasury Department, not by a custodian like Fidelity or Schwab. Not that Fidelity or Schwab just knows everything and is perfect and never makes a mistake, but they are a custodian that's set up to manage investment accounts versus the Treasury is not. So the UX, the access, how that platform is going to be administrated from kind of like the housekeeping end of things, it's just a question mark. It's more uncertainty, and I don't think that any of us needs more uncertainty in our financial lives. And I think the other big thing is that the investment funds are going to be limited to U.S.

14:12companies, which isn't necessarily a bad thing. If you want to support U.S. companies, that's great. But if you're concerned about investment performance over time, that's a big lack of diversification within that account. So they're not, you know, on the face of, they're not like bad accounts. but I think there are better alternatives if you have goals to grow the money. And I think too, because we live in such a polarized political environment, I don't see that resolving anytime soon. I think there's also uncertainty around the future of those accounts. There's nothing to say that a future administration who has very different views could not come in and dismantle that system.

14:52Again, not saying that will happen, but that wouldn't surprise me either just based on how polarized everything is right now and how strongly people feel about one way or the other. You know, again, it's just more uncertainty that we don't necessarily need when there are great alternatives like 529s, like most like taxable investment accounts.

15:14The Long Term Investor Host:All really good points. And the last one you made, I think I saw a headline that California may not acknowledge like the tax deferral, which is a good example of like, Like, we don't even really know how well this is all going to hold up. But if there's free money there, I love it. Like, who doesn't want to take the free money? If you end up getting taxed in some weird way later, it's still more money than you had before. So I'm with you on that. Kind of pivoting a little back to, like, the kids. And they're like, you know, saving for kids, I think, is, you know, going to be specific to each person.

15:44The Long Term Investor Host:You build a financial plan in which not every dollar you earn can be saved and not every dollar you save can be invested. And not every dollar you invest is going to go to just education or just retirement. But when you think about trying to instill good money habits in your children, you mentioned you have a four-year-old daughter. So maybe it's hard to have the big money life lessons happening in your personal life. But if you do have something you're doing, we'd love to hear about it. But we'd also love to hear the advice that you give to clients who are typically having kids who are asking more money questions or at that ripe age.

16:20For our daughter, and she is four, so we can't sit her down and be like, here's a budget, here's a spreadsheet. Although she does sometimes help me. Like I said earlier, kids learn from watching what you do. So whenever I am going in and I track, I'm a person, I have a manual spreadsheet. Any transaction, I manually put it in a spreadsheet. I'm not saying that's the most efficient way to go, but I like doing it because it helps my awareness of our cash flow. So whenever I'm going and kind of logging in my receipts in that spreadsheet, I'll invite her over and be like, hey, do you want to press the numbers on the computer?

16:49Like I'll give you the number, you press it. So I'm involving her in that way. And I also, I used to never carry cash, but I'm trying to carry more cash now so that she can see when I go to pay for something, I can count out the money, I can hand it over. And she can see there's an exchange of something there versus a card. It just gets tapped and it's a little bit more intangible. We also, we do give her an allowance. And I think I go back and forth on this of like, is it right to give a four-year-old an allowance? I don't know. But I think where I came down on it is she does not get she just gets the allowance every week.

17:24It's not tied to chores or anything like that. That's things that she does because she's part of the family. There's an expectation of you will be involved and you will help out because you're part of the family. The allowance is more to give her an opportunity to, again, like hold something tangible, something physical, their dollar bills, and to give her a chance to to figure out, well, how do I manage this money? And in a very small way, she's got a visual piggy bank. It's got a give, save, spend bucket. And she gets to decide where do you want to put that money? Do you want to save it? Do you want to put it in your spend?

17:58My, again, we'll see if this holds true over time. But my theory is because we as her parents are saving money for her, she will probably have access to some degree of money. Like she doesn't need to learn that, oh, I work to earn money because to some degree, she probably will just have money based on what we're doing for her. So I thought it was more important to prioritize letting her work with the money, letting her manage it, letting her kind of mess up with it. And I have noticed like she has gotten much better about when we go to the store and says, Hey, can I like, I want this, I want this toy.

18:32And I can say, well, you can use your money. Oh, that's the best part.

18:37The Long Term Investor Host:That's the best part of allowances by far. So she's really cut down on like asking for things. She thinks about it more. She'll still ask, but it's not incessant. And when I say like, well, sure, you can use your money. I'll help you count it out. She's about 50-50. Sometimes she's like, yep, I want that thing. She's very decisive. But other times she will be like, oh, nevermind. So I think that's helpful just to give her an opportunity, a very small way to make mistakes or to get like gratification for like, hey, I did save up this money for a couple weeks. And now I went and I bought the thing that I like.

19:11But yeah, it could just be a personality thing to like she makes it look like the system's working, but it's just how she's wired. We'll see.

19:17The Long Term Investor Host:Well, since I'll just share because I have two boys. And we also did the save share spend buckets. And it worked really well with the first one. And I've come to learn with our second one that money personality certainly plays a big role in the ongoing success of those. The discipline that we have as parents to adhere to them plays a role. And we similarly did not tie allowances to chores. We still don't. But I'll, you know, because that's what the research says not to do it because you're part of a family and household. I got to tell you, I really wish that we had tied it to chores and we might change at some point.

19:53The Long Term Investor Host:The big transition though, was when we went from physical dollars with our oldest to a digital account. So we use something called Greenlight, where they have those same buckets. But he doesn't really spend any of his money. So the buckets don't matter anymore. He is very generous gift giver, though, to his brother, to his parents, when he can do things for charity, he likes to do it. And so for those of you listening, if you've never really considered a structured process to allowance, what Kaylee is describing, I think is great. I can plug in some resources at the long term transforminvestor.com if you all want to learn more about those processes.

20:30The Long Term Investor Host:And I also think maybe you guys can chime in on these conversations you have with parents, but a lot of times parents are hesitant to do anything because they don't feel confident in their own money capabilities. Suppose if you're watching or listening to us this deep into a conversation, chances are like your money chops are pretty good. But the example you set, you're not going to learn more from anybody about money than you are your parents. And so do you ever have clients come to you asking for assistance or asking for guidance on these sort of things? It's not a ton of questions that come to us from parents about that kind of thing.