Many parents wonder how to save for retirement and college without feeling overwhelmed. You want to help your child get a good education, but you also need to make sure you have enough money for your own future. The good news? You don’t have to choose one over the other! With the right plan, you can save for both.
Here are four smart ways to balance saving for retirement while also preparing for college costs.
1. Put Your Retirement First
It might feel selfish to focus on your retirement before college savings, but it’s actually the best move. Here’s why:
- There are no loans for retirement. Your child can get scholarships, grants, or student loans to help pay for college, but you won’t have those options when you stop working.
- You don’t want to rely on your kids later. If you don’t save enough for retirement, you might need financial help from your children when you’re older. That could put stress on them.
To get started, make sure you’re putting money into your 401(k) or IRA every year. If your job offers a 401(k) match, take advantage of it—it’s free money! Once you’ve built up your retirement savings, you can put extra funds toward college costs.
This is an important step in learning how to save for retirement and college wisely.
2. Use Roth IRAs and 529 Plans to Save Smarter
Some savings accounts work for both retirement and college. Here’s how they help:
- Roth IRAs – These accounts are usually for retirement, but you can also take out money for college expenses without paying penalties. Just remember, using it for college means less money for retirement.
- 529 Plans – This special college savings account lets your money grow tax-free when used for education. It covers tuition, housing, and even some student loans.
- New 529 Rollover Rule (2024 Update) – If your child doesn’t use all their 529 money, you can now roll up to $35,000 into a Roth IRA for them. This means leftover college savings can become part of their retirement fund!
Using these accounts together is a smart way to grow your savings while keeping options open for both retirement and college.
3. Apply for Financial Aid and Scholarships
No matter how much you save, financial aid can help pay for college. Many families don’t apply because they assume they won’t qualify—but that’s a mistake! Millions of dollars in scholarships and grants go unclaimed every year.
Here’s what to do:
- Fill out the FAFSA (Free Application for Federal Student Aid) every year, even if you don’t think you’ll get aid. Some scholarships require it.
- Look for scholarships early. Many organizations offer money for college based on grades, talents, or community service.
- Encourage part-time work or work-study programs to help cover expenses without taking on too much debt.
Using these resources means you won’t have to rely only on your own savings to cover college costs. This is another smart way to balance how to save for retirement and college at the same time.
4. Talk to Your Kids About College Costs
It’s important to have honest conversations with your child about what you can afford. Setting clear expectations early will help them make smarter choices about college.
Some things to talk about include:
- How much you can contribute without hurting your retirement.
- Considering in-state or more affordable schools to reduce costs.
- Starting at a community college before transferring to a four-year university.
- Looking into student loan options carefully so they don’t borrow too much.
When your child understands what’s realistic, they can plan better and focus on applying for scholarships, working part-time, or choosing a school that makes sense financially.
Finding the Right Balance
Figuring out how to save for retirement and college can feel tricky, but it doesn’t have to be stressful. The key is to focus on retirement first, use the right savings accounts, apply for financial aid, and have open conversations about college costs.
If you need help making a plan, a financial advisor can guide you. At Aspyre Wealth Partners, we help families balance their financial future so they can enjoy life now without money worries down the road. Let’s talk about the best strategy for your family!
For even more creative ways to pay for college, checkout these eight tips from Joni Lindquist, MBA, CFP®.