How to Save for College (& Still Retire on Time)

If you’re feeling the financial squeeze from all sides, you may be part of the “sandwich generation” – the generation that’s trying to support aging parents and put kids through school, all while trying to save for their own retirement. It’s a balancing act, to say the least.

While crossing your fingers and wishing for a full scholarship is a fine thing to do, there are other steps you could (and should) be taking. Read on for our suggestions on getting your finances ready for college without pushing your target retirement date back.

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Step 1: Attend next week’s Money Mornings. Our financial planner, Paige Harland, and Becky Nelson from Virginia529 will be speaking on college planning on Tuesday, August 14, 8:00-9:00am at Ellwood Thompson’s Beet Café, with free coffee and pastries.

Step 2: Set your savings goals. Talk with your partner and your fee-only financial planner to figure out how much you’re willing and able to put toward your children’s education. Many people make the mistake of prioritizing college above retirement – don’t fall into this camp! Whenever you feel a pang of guilt over your child graduating with student debt, remind yourself that it’s better than having to support you in retirement. After all, you can take loans out for college, but not for retirement, and your child will have the rest of their lives to pay these loans back.

Step 3: Open a Virginia529 account. Virginia’s 529 plan offers tax-free investment growth and gets you a state tax deduction of up to $4,000 per account per year. Start as early as you can, even if you have to start small, to maximize the number of years the money has to grow and compound.

Step 4: Forecast your financial aid. While your situation and the financial aid formulas are bound to change between now and then, it’s good to get a general idea of whether you’ll be eligible for much. At most universities, assets like your primary residence and retirement accounts are not factored in; other assets are factored in at a low percentage; and your child’s assets are factored in at a higher percentage. Your income will be a key driver of your expected family contribution.

Step 5: Pull in other family members. Your college-bound child should certainly be a part of this conversation – how much are they putting aside from their summer jobs for college? What can they be doing to secure grants or scholarship money? Aunts, uncles, grandparents, and other relatives can be involved by making gifts into the 529 account. If they want to open their own 529 account on behalf of your child or make large gifts of cash during the college years, check with your financial planner to ensure this is done in a way that won’t jeopardize your financial aid package.

With the right amount of planning, it is possible to help your child invest in their future through higher education while still investing in your own through your IRA or 401(k) contributions. The question isn’t one or the other, it’s how to strike the right balance for you. We hope you’ll join us at Money Mornings next week or at an upcoming Personal Finance & Coffee if you’d like to learn more.