The Balance: Saving For Retirement And Your Kids College

Student loan statistics never cease to disturb. In the United States, there are 44 million borrowers with $1.3 trillion in outstanding debt. With that kind of debt burden on new graduates, it’s no wonder that many parents want to try and find a way to save for both their children’s college expenses and retirement.

The reality is, it may not be possible for every parent to save for both retirement and their children’s college. However, there can be ways to find a balance when attempting to accomplish these goals.

Think About Maximizing Your 401(k)

Borrowing from a 401(k) to fund college costs is a plan that can quickly backfire. With early withdrawal penalties and taxes, it’s an expensive option that should probably be avoided. If possible, it may be wise to max out your employer matching contribution to increase the amount that’s saved toward retiring. This can help someone saving for retirement reduce their personal savings burden.

Check Out Your State’s 529 Plan Options

Planning for college is hard when tuition costs keep rising, but in some states, a 529 plan can help by allowing you to prepay tuition costs, locking in today’s prices. Not every state sets up their 529 plans that way, however, in some, the plan acts as a normal savings account.

Get Help With Financial Aid

Taking on the entire burden of school costs without looking into financial aid can be a huge mistake, especially since about 66 percent of full-time students in the 2014-2015 school year qualified for some financial aid. Have your child work with the school’s financial aid counselors to determine which programs, grants and scholarships they might qualify for.

Automate Savings Deposits

Planning to save money and really saving it are two different things. One way to ensure you actually save for both your retirement and your kids’ tuition is by automating your savings deposits. In addition to automating your 401(k) through work, you can automate transfers from your checking account to your kids’ tuition funds and your IRAs every week or month. There are also some bank programs and apps that can allow you to regularly save $1 with every debit card purchase. Some of these programs also help you save the change, the difference between your sales totals and the next rounded up dollar.

Consider Opening an IRA

Every year, you can deposit a good chunk into an individual (non-employer) retirement account called an IRA. You can choose between a tax-deferred Traditional IRA or a tax-free Roth IRA. If you’re in a high tax-bracket now, the Traditional IRA can help you reduce your tax burden, which may leave you more cash to save toward your dual goals. Choosing a Roth means you can take tax-free distributions later on, which reduces the amount you need to have saved.

Even if you can’t fully fund your kids’ tuition costs, the savings you amass can reduce the number of loans they need, putting both you and your child in a much more secure, comfortable financial position during your future golden years.