Balancing College Savings and Retirement: What Every Parent Should Know

As college costs continue to rise, many parents worry about how to save enough for their children’s education without sacrificing their own retirement goals. It’s a common challenge—wanting to provide the best for your kids while also securing your financial future. So, how can you balance saving for college and retirement effectively? Here’s what every parent should know.

Why Retirement Savings Should Come First

While funding your child’s college education is important, many financial professionals recommend prioritizing retirement savings. Here’s why:

• Your financial security matters most: If you run out of money in retirement, you may end up relying on your children financially, which can create stress for everyone.

• There are more options for college funding: Scholarships, grants, student loans, and work-study programs can help cover education costs.

• Retirement savings have a limited window: Unlike college, you only have so many years to save and invest for retirement.

Understanding the Impact on Financial Aid

How you save for college can influence your child’s financial aid eligibility. For example:

• Assets in a parent-owned 529 plan are counted differently on the Free Application for Federal Student Aid (FAFSA) compared to assets in the child’s name. Generally, parental assets have a smaller impact on aid eligibility.

• Withdrawals from 529 plans are not counted as income on the FAFSA, which can help preserve aid eligibility.

Knowing this can help you choose the best savings vehicle and strategy to maximize aid opportunities.

Smart Strategies to Balance Both Goals

1. Contribute to retirement accounts first. Maximize your contributions to employer-sponsored plans (like 401(k)s) and IRAs. The tax advantages and potential employer matches make these accounts crucial.

2. Open a 529 plan for college savings. These plans offer tax benefits and flexibility, making them a great tool for education savings without jeopardizing your retirement funds.

3. Automate savings. Set up automatic contributions to both retirement and college accounts to maintain steady progress without having to think about it.

4. Adjust as needed. Life changes, so regularly review your financial goals and adjust your savings plans accordingly.

5. Explore scholarships and grants. Encourage your child to apply for scholarships and financial aid to reduce the amount you’ll need to save.

The Role of a Financial Advisor

Balancing retirement and college savings can be complex, and a financial advisor can help you:

• Prioritize goals based on your unique situation

• Optimize your savings strategy for taxes and financial aid

• Make adjustments as your family’s needs evolve

• Plan for unexpected expenses

Working with a professional can help you feel confident you’re on the right path.

Final Thoughts

Saving for college and retirement at the same time isn’t easy, but it’s possible with the right plan. Prioritizing your retirement can help ensure you’ll be financially secure long-term, while smart college savings strategies can help support your child’s education without compromising your future.

If you’d like guidance tailored to your family’s goals, don’t hesitate to reach out to your financial advisor who can help you build a balanced, flexible plan.

*The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.