How to navigate retirement while paying for college

You want to save for your retirement, but you also want to help your kids go to college. Here’s how to manage these competing priorities.

We buy their favorite snacks, make their doctor’s appointments, plan their summer camps, and ultimately, we want to give them the best. So naturally, when it’s time to pay for college, we want to be able to help our children get the most affordable course possible. According to the Education Data Initiative, the average cost of college in the United States is $35,331 per student, per year, including tuition, books, supplies, and daily living expenses. It’s a lot. Add to that that many of us are also looking to fund our retirement at the same time we’re helping our child with college fees. How, exactly, do we manage with such costly competing priorities?

As moms, we know all too well the emotions, feelings and fears associated with saving for retirement and the desire to help our children go to college. “As a single mom, I contribute all I can to my 401(k) each month for retirement, in addition to funding my IRA when I’m able to,” says Meredith Nelson, senior vice president. marketing for Bank of Southern States. “But next year when my daughter goes to college, I have to consider that I may have to at least reduce my contributions to help pay for those college expenses,” Nelson says. “My fear is that I won’t have enough to live on when I retire, and when I retire, where will we be with social security?” she says. So what should a mom do?

Understand your emotions and never sacrifice your own future

“Not only is this situation common, but it is extremely common,” says Erin Wood, Senior Vice President of Financial Planning and Advanced Solutions at Carson Group. Taking from your 401(k) or reducing your contributions to help pay for your college education might seem like a good plan initially. But any financial adviser, however, will advise you to avoid dipping into that 401(k),” Wood says.

The problem with withdrawing from your retirement accounts to pay for your college education is that once you take that money, it won’t benefit from the time in the market that it can grow, so you might miss out. years of compound interest. Also, if your employer is offering a match and you’ve reduced your dues or taken out a loan on your account, you’re missing out on the free money your employer pays on your behalf.

Another thing to think about are tax considerations, says Wood. By not contributing to your 401(k), you could put yourself in a higher tax bracket, which could also affect your child’s status with the FAFSA. “The biggest reason to avoid dipping into your retirement is probably that if you’re late, then now you’re even further behind if you take money out or contribute less,” Wood says. You’re missing out on all that growth, and at the same time, if you take money out, it could negatively impact your finances for years to come. You may have heard that “there, there are no loans for retirement, but there are loans for university”, and we wholeheartedly agree with this advice.

Consider a 529 college savings account

A 529 College Savings Plan can be a great way for parents looking to save money for their education in a tax-efficient way. Read more about these plans here. “With college fees these days, there’s definitely not enough to pay for the four years, but it’s a starting point for us and we’ll definitely use it,” says Nelson, who started a 529 for her child.

And keep in mind that funding your 529 isn’t entirely on your shoulders – if you let family and friends know you have this 529 in place for your child, they can contribute to the fund. for birthdays, holidays and other occasions rather than providing another useless toy. With some 529 plans, it’s as easy as emailing a link to your friends and family so they can contribute.

Candid conversations with your child about college expenses

When your child is old enough, it’s a good idea to have an open conversation with them about college expenses. “I’ve always talked to my daughter about going to college, and we’ve already started talking about how we’re going to handle the financial aspects of it all,” Nelson says. “I am also convinced that I have the support of his father to help pay the tuition fees. Combined with his excellent grades and test results, we are definitely applying and hope that scholarships will also help us” , she says.

Talking about what you’ve saved, what you haven’t saved, and strategizing how they’ll contribute really helps them have a vested interest, Wood says. You could help them consider more economical schools, a part-time job, in-state schools, a college work-study program, or employment with a company that offers tuition reimbursement. More and more companies like Target, Amazon, and Wal-Mart are offering tuition assistance. More than likely, after an honest discussion, our children would never want us to compromise our retirement to help pay for their college education. And if they invest in their education, they can feel like they have “a role to play” and take the experience more seriously, Wood says.


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