I’ve saved for my kids’ college since birth, but I have a more important savings goal.

I've saved for my kids' college since birth, but I have a more important savings goal.

Putting Retirement First: A Humorous and Positive Approach to College Savings

Student loan debt in the United States has reached a staggering $1.774 trillion, placing a heavy burden on those pursuing higher education. This daunting reality has led many parents, like my husband and me, to prioritize saving for our children’s college education from an early stage. However, we’ve discovered that while saving for college is essential, it shouldn’t overshadow our retirement aspirations.

To strike a balance between these two important goals, we turned to 529 plans. These tax-advantaged savings accounts not only allow our money to grow tax-free but also provide the added benefit of tax-free gains. With generous contribution limits, 529 plans are ideal for busy parents who want to save for college but lack the time and energy to navigate complex investment strategies.

There are two types of 529 plans: education savings plans and prepaid tuition programs. The former allows us to save for future educational expenses, while the latter enables us to purchase future college credits at current prices, potentially saving us a considerable amount of money. Additionally, 529 plans permit us to change our investment selections twice a year without penalties. However, it’s important to note that there are strict requirements for withdrawals. Any funds used for non-approved educational expenses will incur a penalty.

Although our state offers prepaid savings plans for Florida schools, we opted for general 529 plans for our two boys. We wanted to ensure they had the freedom to choose from any college, rather than being limited to Florida schools.

Automation has been a lifesaver in managing our finances, from bill payments to contributions towards our retirement plans and our kids’ 529 accounts. As soon as we received our children’s Social Security cards in the mail, which typically happens two to four weeks after their birth, we wasted no time in opening their 529 accounts. The following month, we set up recurring contributions for both babies. While the exact amounts have varied over the years, we’ve maintained consistency with our monthly contributions. This automation has alleviated the stress of saving for college. Considering that the average out-of-state college education costs around $108,364 for four years, any assistance we can get is greatly appreciated.

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While it’s possible to use the same 529 plan for multiple children, we decided to create a separate account for each of our kids. By doing so, we have the flexibility to change beneficiaries easily. If one beneficiary decides against attending college, we can transfer the funds to the other child. Moreover, recent developments have expanded the usage of 529 plans. Now, they can also be used to pay off up to $10,000 in student loans or even rolled into a Roth IRA, although contributions to the latter are capped at $35,000. In addition, 529 plans can cover expenses related to apprenticeships or continuing education. Therefore, if the funds are not utilized for college, they won’t go to waste.

When it comes to prioritizing our financial goals, our first financial advisor imparted a piece of wisdom that stuck with me: “You can’t borrow for retirement, but your kids can borrow for college.” This humorous yet profound advice highlighted the importance of putting our retirement first. It also emphasized the significance of preventing our children from feeling obligated to support us during our retirement years.

Today, it is estimated that Americans need a nest egg of at least $1.8 million to retire comfortably. While this figure depends on individual standards of living and potential additional income from sources such as Social Security or pensions, it serves as a guideline for planning our retirement. Although we’re not yet fully on track to meet our retirement goals, each passing year brings us closer. This progress is made in part because we’ve prioritized retirement savings, even more than our children’s college education.

Following the advice of our financial advisor, we’re steering clear of muddling our children’s future with parental guilt by focusing on funding our retirement now. This way, we can envision peacefully enjoying our golden years, sipping wine amidst the breathtaking landscapes of Napa.

In conclusion, saving for college is undoubtedly important. However, it should not overshadow the importance of planning for one’s retirement. 529 plans offer a practical vehicle for saving, with their tax advantages and flexibility. By automating our contributions and maintaining separate accounts for each child, we’re well on our way to striking the right balance between college savings and retirement planning. As parents, it is crucial that we ensure our own financial stability while laying the groundwork for our children’s future success.

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