Saving for college without derailing retirement

Most parents want to give their kids a good start. But saving for college can feel like it competes with saving for your own future.

It can feel like you have to choose one. A thoughtful plan may let you work toward both.

Why retirement often comes first

There's a common saying in planning: you can borrow for college, but not for retirement. Students may be able to use grants, scholarships, work-study and student loans.

Retirement has no grants or scholarships. If savings fall short, the choices may be working longer or spending less.

Keeping retirement on track can help your children, too. It may lower the chance they'll need to support you later.

Set clear goals for each

Before picking accounts, get clear on what you want. Talk as a family about a few questions:

• How much of college costs do we hope to help with?
• Are we thinking about a public school, private school, trade school or community college?
• How many years do we have until college starts?
• When do we hope to retire, and what will we need?

Your answer doesn't have to be "all of it." Some families plan to cover part of the cost and look to grants, scholarships and student work for the rest.

Common tools for saving for college

There are a few common tools families use. Each has its own rules, so it's worth learning the basics.

• 529 plans. These education savings plans are run by states or schools. When the money is used for qualified education costs, earnings are generally free of federal tax, and some states offer added perks for residents.
• Coverdell education savings accounts. These are another type of education account, with yearly contribution limits and income rules.
• Regular savings or brokerage accounts. These offer more flexibility but don't come with special education tax benefits.

If 529 money is used for costs that don't qualify, the earnings may face income tax plus an extra federal tax. College savings can also affect financial aid, so a CPA or tax professional can explain how the rules apply to your family and your state.

Keep both goals moving, and protect them

You don't have to wait until one goal is done to start the other. A few habits can help you make steady progress on both.

• Keep saving in your workplace retirement plan, especially if your employer offers a match.
• Set up automatic transfers so saving happens without extra effort.
• Add part of each raise to your savings goals.
• Invite grandparents or relatives to give toward college instead of toys on birthdays.
• Check in each year with our yearly money review checklist.

Saving for two big goals takes years. If something happened to a parent along the way, the plan could fall apart.

Life insurance and disability coverage are meant to help protect your family's finances if the unexpected happens. Our guide on how much life insurance you need explains how families think about it.

Our team helps families look at the protection side of their plan. We can work alongside your tax and investment professionals so the pieces fit together.

Common questions

Should I save for retirement or my child's college first?

Many planners suggest keeping retirement saving going, since students may have aid and loans and retirees don't. The right balance depends on your family, so it's worth talking through with a professional.

What happens to a 529 plan if my child doesn't go to college?

Under IRS rules, you can generally change the beneficiary to another family member without tax consequences. Money taken out for non-qualified costs may face taxes on the earnings, so check with your CPA first.

Bottom line

You don't have to pick between your child's future and your own. With clear goals and steady saving, many families find room for both.

Start with what you can do today, and review your plan each year. To see how we help families plan ahead, visit our financial planning page.

Have questions about your situation? Book a complimentary call with our team.

This article is for general education only and isn't financial, tax or legal advice. Product features vary by carrier and state. Talk with a licensed professional about your situation.