Saving for College vs. Saving for Retirement: How to Balance Competing Priorities

Retirement

Saving for College vs. Saving for Retirement: How to Balance Competing Priorities

Posted by Infinite Wealth Advisors, LLC
1 month ago | January 13, 2025

Parents and grandparents often face a challenging financial question: How can you help fund a loved one’s college education without jeopardizing your retirement savings? Both goals are important, but balancing them requires a thoughtful approach to ensure neither is compromised. The following strategies can help you navigate this financial balancing act.

1. Prioritize Retirement First
While it may feel selfless to prioritize saving for a child’s or grandchild’s education, your retirement savings should come first. Why? Unlike education, which can be funded through scholarships, grants, or loans, there are no loans for retirement. By ensuring your financial stability, you’ll avoid becoming a financial burden on your family later.

Maximize contributions to your retirement accounts, such as a 401(k) or IRA, and take advantage of employer matching programs. If possible, aim to save at least 15% of your income for retirement, including any match.

2. Start Early and Automate Both Goals
The earlier you start saving, the easier it is to reach both goals. Consider automating contributions to both retirement accounts and a college savings plan, like a 529 plan. Even small, consistent contributions can grow significantly over time thanks to compounding interest.

3. Leverage Tax-Advantaged Accounts
Retirement Accounts: Contributions to 401(k)s, IRAs, and Roth IRAs often come with tax benefits, allowing your savings to grow more efficiently.
529 College Savings Plans: These accounts offer tax-free growth and withdrawals for qualified education expenses, making them an excellent tool for college savings.

4. Involve the Student
Encourage your child or grandchild to explore scholarships, grants, work-study programs, and part-time jobs. These resources can reduce the financial burden of college while teaching responsibility and money management.

5. Balance Contributions Based on Timelines
If your child is nearing college age and your retirement is still 20 or more years away, you might allocate more to education in the short term. Conversely, if retirement is closer, focus on maximizing your retirement savings while contributing smaller amounts to college.

6. Consult a Financial Advisor
Balancing these competing priorities can be complex. A financial advisor can help you create a personalized plan that aligns with your financial situation and goals.

The Bottom Line

Saving for college and retirement doesn’t have to be an either-or decision. With careful planning, you can support your loved one’s education while building a secure retirement. If you’re unsure where to start, contact our office for a comprehensive evaluation of your financial strategy. Together, we can create a plan to help you achieve both goals without sacrificing your peace of mind.

 

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