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Towards the end of the year, many are undergoing an annual
review of their retirement funds. It certainly was a tough year and one of
the decisions many parents are grandparents are facing is the difficult
decision to either save for retirement or use funds to pay for their
children’s or grandchildren’s college education. Here are some thoughts on
the matter:
Prioritize retirement over education
In
most cases it is more important to put the financial needs of retirement
ahead of college education. Here’s why:
- Retirement funds will be used to cover your basic
needs for daily life for as many as 20, 30 or even 40 years. While
education for children is important – and expensive – it is secondary
to your long-term well-being.
- Financial aid and numerous other programs are
available for your child to take advantage of to help them afford
college. This includes current and future student loan forgiveness
programs.
- If necessary, your child can take out student
loans. While it may take years for them to repay a student loan, they
will have future income potential to do so. Your income will be lower
or even stop upon retirement.
Ways to plan for both
There
are plenty of opportunities to fund both retirement and college education
in a tax-advantaged way. Consider funding basic retirement needs first,
then look at educational savings accounts and related programs. Here are
some suggestions:
- Start saving early. Use time to help grow the value in your retirement
and education savings accounts. Take advantage of employer-provided
401(k) or similar retirement programs, especially if there is an
employer match. After that, look into Coverdell Education Savings
Accounts and Section 529 plans to maximize your education savings
potential.
- Research and apply for grants and scholarships. Start researching early, as there are college
scholarships available for children as young as 5 years old!
- Consider in-state public colleges. They are generally less expensive than private or
out-of-state colleges. If an out-of-state college is preferred, check
to see if they have reciprocity agreements with your home state.
- Look into work-study programs. Many schools provide part-time jobs for students
to help them pay for school while keeping up with their studies. These
programs vary based on a student’s financial needs.
Making
financial decisions like this can be tough, but with proper planning and
insight, a path that works for you can often be found. Call if you want to
discuss your specific situation.
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