You juggle multiple financial priorities, whether it’s buying a
house, having children, starting a business or buying a car. Saving for
retirement and a child’s college fund at the same time is no different, but
that’s not to say it’s easy.
Get It Down on Paper
Start by setting a budget and timeline for both retirement and
college. While the college start date is probably somewhat fixed, you may have
more latitude concerning your retirement. Once the kids are old enough, include
them in the conversation about how much you can afford to help with college and
what they can do.
It’s important to set realistic goals about the types of
colleges within your budget. Don't let higher education costs get out of
control. If your child has their heart set on a specific school or major, there
may be ways to lower costs (e.g., subject-specific scholarships and grants). The
expectation shouldn't be that you're going to write a lot of checks. And always
have a backup plan or safety school.
Controlling College Costs
Explore ways to reduce college expenses. Help your child
identify special interests early on. Athletics? Music? Science? Math? Money may
be available for all of those IF your child is exceptional. Identify
colleges early too. See if they can attend special interest camps there to (a)
see how they like it, and (b) meet faculty who might recommend them for a
Also, 529 plans can be a good way to divide retirement from
college savings and offer a number of benefits, including the option of contributions
by relatives. Coverdell Education Savings Accounts (ESA), sometimes called
education IRAs, are tax-advantaged savings vehicles that allow tax-free
distributions for qualified educational expenses. Read more about the rules and
restrictions of the program in the link below.
Similarly, find ways to boost your retirement savings or scale
back your retirement goals. If time is tight, consider whether you can work a
little longer or adjust the kind of retirement lifestyle you’re budgeting for.
For example, could you downsize your home or move to an area with a lower cost
Also, make sure you’re contributing at least enough to your
employer-sponsored 401(k) to earn the maximum company match — this is free
money, and you don’t want to leave it on the table. What you also don’t want to
do, however, is ramp up your level of investment risk beyond what is
appropriate for your personal tolerance and your retirement timeline just to
try to boost returns.
The most important thing you can do during this juggling act is
to sit down and have a frank conversation with your financial advisor about
your goals. He or she may be able to come up with options you haven’t even