Balancing Saving for College an Retirement

Summer vacation is almost here. How many more summers until you have a graduate heading off to college? It always comes faster than we'd like. So does retirement. Will you be ready? When it comes to choosing between saving for a child's college education or saving for retirement, which one should be the priority?

Think About it This Way

Sure, you want to minimize the amount your child will owe for student loans. But keep in mind that there are no loans for retirement if you come up short on your savings. While there are no hard and fast rules about prioritizing your savings, the usual recommendation is to put aside money for retirement first. Your personal circumstances should be your guide. Here are several things to consider.

How Much Have You Saved?

If you already have significant retirement savings, you may be able to direct more money toward saving for your children's college expenses. Be sure to run the numbers first, so you know you can afford to do this. However, make sure you're still contributing enough to your company's retirement plan to take advantage of employer matching funds.

Contribute to a 529

Plan A 529 plan* allows you to make after-tax contributions to a college investment account on behalf of a designated beneficiary. One upside: Parents may be able to contribute less if others are chipping in. Grandparents, other relatives, and friends can contribute to the account. Withdrawals are tax free if they're used to pay qualified education expenses, including tuition, room and board, fees, books, and supplies.

Open a Roth

IRA Although typically for retirement savings, a Roth IRA can do double duty as a college fund. You won't pay a penalty on earnings you withdraw to pay qualified higher education expenses if the account has been open for five years or longer. Any funds remaining in the IRA will still be invested for your retirement.

Other Payment Options

There are a variety of ways to pay for college, including financial aid, loans, and work study. In addition, many organizations offer scholarships to students whose interests align with their mission. Start as early as you can. Work with your school's counselor throughout high school to learn how to qualify for aid.

*Certain requirements may apply. Before investing, read the program offering statement and consider the investment objectives, risks, charges, and expenses. These plans are not guaranteed by any state or federal agency.