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Articles / Admissions / College OR Retirement Savings?

May 20, 2020

College OR Retirement Savings?

When our children were growing up, my wife and I often talked about how we were going to save enough college money for two kids. That task alone seemed overwhelming, but we also had to discuss retirement, the other money monster sitting out there on the horizon. How to manage both?

Therein lies the challenge for most parents today: saving for college and retirement simultaneously. US News has put together a thoughtful article that explores five key points that can help you address this two-pronged conundrum. Here's a quick check on the Fab Five:

Maximize your match. Don't pass up your employer's 401(k) contributions, even to save for college. "I would rank retirement first and college second because there are other ways to pay for college," says Lynn Mayabb, a senior managing adviser for BKD Wealth Advisors in Kansas City, Mo. "There are no loans for retirement." A 401(k) match yields a greater return than you'll get on almost any other investment. Carl Wiley, 37, of Bayonne, N.J., says that saving for retirement is his primary goal . . .

Check out 529 plans. Saving in a 529 plan allows a college fund to grow tax deferred, plus withdrawals to pay for college costs are tax free. Some states offer tax breaks if you invest in your home state's 529, but college savers can also shop around for the best plan in any state. Pay attention to enrollment, asset management, distribution, and maintenance fees to size up the best deal, and weigh the expenses against the state tax breaks . . .

Consider a Roth IRA. Some retirement savers tap their nest eggs to pay for college. IRA distributions taken before age 59½ are exempt from the usual 10 percent early withdrawal penalty when they're used to pay for education expenses such as tuition, fees, and books. But traditional IRA withdrawals are still taxed as income, and Roth IRA distributions require taxes on the portion of the distribution that comes from earnings . . .

Evaluate financial aid. For students applying for federal financial aid, the saving vehicles their parents use can make a big difference in their aid package. Retirement account balances and the value of the family's primary residence or a family-owned small business are not counted toward the expected family contribution the government judges your family is able to pay for college. But IRA and 401(k) withdrawals are considered income and can affect government calculations . . .

Get your kids involved. Level with your child about how much college costs and your own retirement concerns. "Communicate to them how much the education will cost and how much you, as the parent, are willing to pay and how much they, the student, need to come up with," says Hefty. "The kids that are more actively involved in the financial decisions for their education gain more from the college experience." . . .

Granted, many families are living paycheck to paycheck, especially in light of the economic situation here in America. However, as with most challenges, the key is early planning. I often think about "big" jobs, like painting a house. The main ingredient for success is preparation. Once the groundwork is laid, the actual task becomes easier.

So, think about your financial "house" and brush up on getting an early start. It may be later than you think.


Don't forget to check out all my admissions-related articles and book reviews at College Confidential.

Written by

Dave Berry

Dave is co-founder of College Confidential and College Karma Consulting, co-author of America's Elite Colleges: The Smart Buyer's Guide to the Ivy League and Other Top Schools, and has over 30 years of experience helping high schoolers gain admission to Ivy League and other ultra-selective schools. He is an expert in the areas application strategies, stats evaluation, college matching, student profile marketing, essays, personality and temperament assessments and web-based admissions counseling. Dave is a graduate of The Pennsylvania State University and has won national awards for his writing on higher education issues, marketing campaigns and communications programs. He brings this expertise to the discipline of college admissions and his role as a student advocate. His College Quest newspaper page won the Newspaper Association of America's Program Excellence Award, the Pennsylvania Newspaper Publisher's Association Newspapers in Education Award, the Thomson Newspapers President's Award for Marketing Excellence and the Inland Press Association-University of Kentucky School of Journalism and Mass Communications Inland Innovation Award for the Best New Page. His pioneering journalism program for teenagers, PRO-TEENS, also received national media attention. In addition, Dave won the Newspaper Association of America's Program Excellence Award for Celebrate Diversity!, a program teaching junior high school students about issues of tolerance. His College Knowledge question-and-answer columns have been published in newspapers throughout the United States. Dave loves Corvettes, classical music, computers, and miniature dachshunds. He and his wife Sharon have a daughter, son and four grandchildren.

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